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Why Mesa Air Group Stock Is Falling Today

By Lou Whiteman – Aug 10, 2021 at 1:35PM

Key Points

  • Reporting fiscal third-quarter earnings that met expectations, Mesa said spare part shortages are limiting its ability to expand flying.
  • The company is well positioned for the future but could continue to face headwinds this year.

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Spare part shortages are crimping growth.

What happened

Shares of Mesa Air Group (MESA 0.79%) fell 10% on Tuesday following the regional airline company's earnings release. The company is seeing stronger demand for its services, but maintenance issues and spare part shortages are restraining growth for the time being.

So what

Mesa earned $0.11 per share in its fiscal third quarter, in line with analyst estimates, on revenue that at $125.16 million fell about $6 million short of expectations. The company also said it has invested in Heart Aerospace, a company that is working on a 19-seat electric aircraft.

Planes parked at an airport.

Image source: Getty Images.

The entire airline industry was hit hard last year by the pandemic, but Mesa and other regionals weathered the storm better than most. Regionals don't operate planes under their own brands; instead, they fly small jets under capacity agreements with partners. Mesa flies to 116 cities for American Airlines Group and United Airlines Holdings under the American Eagle and United Express brands, respectively, and also participates in DHL's freight network.

Mesa is trying to ramp up flying in response to more demand from its airline partners, but the company has been held back by shortages in spare parts that have kept planes grounded longer than expected. The issue was particularly bad for its CRJ900 fleet, which it flies for American, leading to times during the quarter when it didn't have the minimum aircraft and spares needed to operate a reliable schedule.

"We had a strong quarter as a result of the rebound in air traffic that led to a sharp increase in block hours compared to the prior year period, as well as last quarter," CEO Jonathan Ornstein said in a statement. "While travel demand remains below pre-pandemic levels and supply chain disruptions have compounded the challenges we face in the current environment, we continue to press forward."

Now what

Mesa seems to be heading in the right direction, and its growing partnership with DHL, which will use larger aircraft, should help the company to retain pilots because it gives them the opportunity to fly larger aircraft, at higher rates, compared with most regional operators.

But the recovery is not smooth, as the spare part issues showed, and the threat remains that new COVID-19 variants could slow travel demand in the quarters to come. For long-term holders there is a lot to like about Mesa, but the latest earnings report is a reminder that holders should keep their seat belts fastened and focus on the long term.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Mesa Air Group, Inc. Stock Quote
Mesa Air Group, Inc.
MESA
$1.27 (0.79%) $0.01

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