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Mesa Turns Small Planes Into Big Profits : Aviation: The airline that began a dozen years ago with a single five-seat aircraft has become the fastest-growing regional carrier in the country. A pending acquisition will nearly double the New Mexico-based company.


FARMINGTON, N.M. — Mesa Airlines, which began a dozen years ago with a single five-seat aircraft, has become the fastest-growing regional carrier in the country by turning small planes into big profits.

And it's poised to nearly double in size with the pending acquisition of WestAir Inc., one of the country's largest independent commuter operators.

The WestAir deal would expand the Mesa network to 107 cities in 29 states, with hubs in Albuquerque, Phoenix, Milwaukee, Kansas City, Mo., Tampa, Fla., Los Angeles, San Francisco, Seattle and Portland, Ore.

"I never imagined 10 years ago that we'd have evolved to this point today," said Larry L. Risley, Mesa's founder and president. "It's overwhelming."

Mesa's success stands out in an industry that's been battered by the recession and severe competition. Pan Am and Midway went out of business last year, while those filing for bankruptcy include TWA and America West.

Risley said Mesa's formula is simple: Keep operating costs low through maximum use of staff and equipment. That means using smaller aircraft and more frequent flights.

"It is a very important strategy," said Dan Hersh, an airline analyst with Kemper Securities Group in Denver. "The key issue is sizing the aircraft for the market."

The company also cuts costs by doing much of its own maintenance and by keeping employee productivity high. Pilots help with baggage handling, and even Risley will make reservations if customer service lines get busy.

The airline offers only limited in-flight services such as snacks instead of meals, and it has its own engine-overhaul facility.

"There isn't any regional airline in the country that's grown like them," Hersh said. He said Mesa's costs are about 30% lower than other regional airlines'.

Analysts say Mesa's attention to its bottom line helped the airline grow from a $5-million company in 1985 to a $78-million airline in 1991. Annual net income during that time has risen from less than $200,000 to $5 million, and the company projects $120 million in revenue in the fiscal year that began in October.

The stock trades at about $22, up from $8 this time last year.

Risley, 47, knows about planes from the inside out. He's an aircraft mechanic who moved to Farmington from Waco, Tex., in 1979 to run Mesa Aviation Services, an air charter.

Regular passenger service began in October, 1980, when Mesa Aviation launched a shuttle between Farmington and Albuquerque with a five-passenger, single-engine plane.

Mesa later traded up to a nine-passenger plane, and Risley bought out the business with a $140,000 loan.

"We were off and running as a mom-and-pop airline operator," he said.

The airline grew initially from a bust in the energy industry that put some competitors out of business, including Pioneer, Zia and Trans-Colorado airlines.

In 1989, Mesa started up Skyway Airlines, which serves 20 cities in seven states from its Milwaukee hub.

A year later, Mesa paid $4 million for the assets of money-losing Aspen Airways, which serves 22 cities in the Rocky Mountains, including Denver.

"That was really our first big step," said Jonathan Ornstein, Mesa's vice president for planning and scheduling.

Mesa didn't just buy Aspen. It wrapped the airline in its corporate strategy, replacing the aging fleet with smaller planes, eliminating unprofitable routes and lowering costs by 50 percent.

Mesa also got into code sharing in the 1980s, a big break for the little airline. Code sharing allows big and small carriers to share a two-letter code on flight numbers in a reservation system. For instance, if someone was flying from Grand Junction, Colo., to New York, the Mesa flight from Grand Junction to Denver would appear on the system with the United Airlines flight from Denver to New York.

Ornstein said the system is important to Mesa because 80% of all bookings are done through central reservation systems.

"You have to be associated with a major carrier if you're flying into a hub against other commuters," he said.

Mesa's growth spree didn't end with Aspen. With newfound access to financial markets, Hersh said, Mesa tapped into funds it used to buy more airlines. One of them was Air Midwest, which Mesa acquired last July for $40 million in cash and stock.

Mesa again lowered costs and replaced old planes.

In late August, Mesa started FloridaGulf Airlines, which flies from Tampa. And in November, it announced the $32-million agreement to acquire WestAir, which serves 36 western cities, mostly in California.

If the merger is approved by shareholders, Mesa will grow to 126 aircraft and 2,000 employees.

"It's been an exciting time," Ornstein said. "When I joined Mesa in 1989, we had 11 planes and 200 employees."

Of all the acquisitions, Ornstein said WestAir may be the most challenging because it's bigger and isn't making money. WestAir carries about 2 million passengers a year, compared to Mesa's 1 million.

Hersh also noted that the California market is more competitive and hurt by the sluggish economy.

"On balance, I think they'll be successful, but how much so and how soon are the biggest questions," he said.

But Risley has confidence in the company's low-cost philosophy.

"Mesa is bottom line oriented, not market share driven," Hersh said. "They do what contributes to the overall profitability of the company, not the things that other airlines get caught up in."

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