Regional air carrier Mesa Air Group (MESA) today filed for Chapter 11 bankruptcy protection citing “an untenable financial situation resulting primarily from our continued lease obligations” for more planes than the company can use. Mesa stock’s 52-week range is a disastrous $0.01-$0.36. Clearly, the oxygen mask needed to drop.

Mesa flew its own routes, but 96% of its revenues in 2009 resulted from code-share agreements with United Airlines (UAL), US Airways (LCC) and Delta (DAL). The company is primarily a feeder from small cities to regional hubs and wants to get rid of some of its 130 leased planes. United cancelled its deal with Mesa for 26 planes in November, and the company is suing Delta for upwards of $70 million after Delta sought to terminate its contract for 22 Mesa planes.

Airline Outlook for 2010 Is Not Flying High

Overall, the outlook for regional carriers like Mesa and Republic Airways (RJET) approaches dismal. Travelers are not buying tickets, forcing the carriers to lower prices in the hope of attracting customers, and fuel costs are rising, putting the companies in the nasty position of having to deal with rising costs and falling revenues.

Mesa appears to have had no strategy for pulling through this situation. Republic followed what may still turn out to be a bad course by purchasing two other struggling regional carriers, Midwest Airlines and Frontier. That strategy puts Republic up against both Southwest Airlines (LUV) and AirTran Airways (AAI) in the Denver and Milwaukee markets.

While the regional carriers are indeed struggling, the turmoil facing the large carriers could be even greater. The threatened bankruptcy of Japan’s JAL has focused attention on the deep problems in the airline industry. American Airlines (AMR) wanted to invest $1 billion in JAL in order to secure routes in Asia, but that deal is probably off the table, and American’s balance sheet at the end of the third quarter showed liabilities about $3 billion in excess of assets. American is holding on, but only just.

Regional carriers could be the canaries in the coal mine for the airlines industry. They’re still chirping, but the sound is more like gasping for air than singing.

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