Delta's plan to cancel contract threatens Mesa Air

The Phoenix-based company said in a filing with the Securities and Exchange Commission that the loss of $20 million in monthly revenue from the Delta deal could lead to a cascade of defaults if it can't restructure its debt, acquire additional capital or otherwise restructure.

One of the nation's largest regional airlines, Mesa operates as Delta Connection, US Airways Express and United Express under contractual agreements with Delta, US Airways (LCC) and United Airlines (UAUA).

Mesa's SEC filing said the Delta operations accounted for about 20% of its 2007 revenue. Losing the deal to provide Delta regional service would cost Mesa an estimated $960 million over the next four years.

In addition, Mesa would be on the hook for leases for 34 regional jets that it likely would be unable to redeploy to other routes. It estimated aircraft leasing, labor and other costs at $250 million to $300 million over the next four years.

Defaulting on its obligations would require the company to seek legal protection from creditors that could affect Mesa's ability to continue in business, the filing said.

Mesa sued Delta last month in an effort to prevent Delta from ending its service agreements.

Delta told Mesa that it was canceling its deals because of performance issues on its Freedom Airlines subsidiary, which Mesa in turn blamed on Delta's actions.

A hearing on the lawsuit is set to begin Tuesday.

Mesa has been struggling for several months.

Last week, the airline said it would shut down subsidiary carrier Air Midwest, cutting off service to 16 small cities in 10 states, because of soaring fuel prices. Air Midwest operated government-subsidized "essential air service" flights to the cities.

Mesa's finances also have been hit in many other areas.

Its Hawaiian carrier, Go, has struggled to make a profit and sparked a lawsuit with Hawaiian Airlines (HA) that ended with Mesa agreeing to pay $52.5 million.

Last week, Mesa shareholders authorized it to issue millions of new shares to help pay off $37.8 million in senior convertible notes due in June.

A separate company filing Thursday said the carrier agreed with some of its bondholders to repurchase some of the notes and delay requiring the company to buy back others.

Mesa's shares have dropped more than 75% since the beginning of the year. They lost 9 cents to close at 48 cents Thursday.

The company had a net loss of $4.2 million on revenue of $326.6 million in the first quarter.

Mesa Air Group was founded in 1982 by Larry Risley, a former aircraft mechanic who mortgaged his house and business to start the airline.

It has grown into a major commuter carrier with 5,000 employees and about 1,100 daily departures to 184 cities