Investors of Mesa Air Group (NASDAQ:MESA) stock got a few surprises this morning. First of all, Mesa is winding down its operations with American Airlines (NASDAQ:AAL), having struck a new agreement with United Airlines (NASDAQ:UAL). On top of that, Mesa also announced its intention to explore options to raise capital. These news items are all helping MESA stock move significantly higher today.
Mesa Air Group acts as a regional carrier and is of course much smaller than American Airlines and United Airlines. Still, it might seem disappointing that Mesa would choose to end its “ongoing unprofitable operations with American Airlines.”
Apparently, the problems with Mesa’s operations with American included “higher pilot wages and block hour utilization penalties driven by the ongoing industry wide pilot shortage.” Yet, the winding down of this arrangement is accompanied by some positive news.
Specifically, Mesa just inked a new, five-year deal with United Airlines. This could be a bigger, better deal compared to the one Mesa had with American Airlines. That’s because, in the new agreement, United Airlines will “compensate Mesa for the higher costs associated with regional jet flying.”
What’s Happening With MESA Stock?
MESA stock is flying like a jet plane in early trading today, now up by more than 10%. This is great news for long-side investors, as shares are now firmly above the crucial $1 level.
There’s actually another development alongside Mesa Air Group’s switch from American to United. Per Reuters, Mesa is reportedly “exploring options to raise money amid rising costs” as well.
Evidently, Mesa incurred these costs when it provided its pilots with “bumper contracts” to prevent them from switching to other airlines. Perhaps the new agreement with United Airlines will help Mesa defray those costs.
Mesa Air Group has already finalized a sale of eight CRJ-550 jets to United Airlines. That should raise some capital. But the company also intends to sell “additional surplus aircraft, spare parts and spare engines.”
All in all, it sounds like the positive news may outweigh any disappointment from Mesa’s break in business relations with American Airlines. Or at least, that’s how today’s bullish MESA stock traders seem to be interpreting the headlines.
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On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
