New year, new airline bankruptcy, same old lies

by Edward Hasbrouck on January 6, 2010

go
Mesa Air, a “regional” airline operating interisland flights in Hawaii as Go Mokulele and operating codeshare flights elsewhere in the names of United Express, US Airways Express, and Delta Connection, filed for bankruptcy protection today.

I’ve updated my FAQ about Airline Bankruptcies accordingly.

In a press release announcing the filing, headlined “Business Will Continue Unaffected”, Mesa claimed that, “Customers can be assured that tickets will continue to be sold and honored, all terms and conditions governing tickets purchased remain the same, and our frequent flyer program remains intact.”

That’s a lie. False, obviously intended to give potential customers false reassurance, and clearly fraudulent. This press release is a “deceptive business practice”, and if the U.S.Department of Transportation were doing its job in policing airline truth-in-advertising, it would be the subject of immediate and severe enforcement action and sanctions.

Later in the same press release, Mesa gives a more accurate statement of the facts:

To ensure the Company operates without interruption, Mesa is seeking authority from the Court to continue all of its normal operations. The requests include authority to continue to pay employee salary and benefits, fulfill code-share partner agreements, honor customer programs, and pay vendors and suppliers for post-petition goods and services. These requests are standard and the Company anticipates receiving approval in the next few days. [emphasis added]

There’s a huge gulf between what “can be assured” or what a company “will” do, and what it is “seeking authority from the Court” to do, even if it “anticipates” approval (which may not be granted, and which if granted could be revoked at any time).

The bottom line is that now that the company has (voluntarily) placed itself under the protection and supervision of the court, whether it will be allowed to continue to operate is out of the hands of company management, and in the hands of the bankruptcy judge. Except to the extent that holders of paid tickets are considered creditors (as they should be, and as they should be represented in the creditors’ committee), the judge is required to make that decision not on the basis of any desire for continuity of service, but solely on the basis of what will maximize how many pennies on the dollar the company may eventually return to its creditors.

Ironically, Mesa Air wasn’t even in the running in the current betting with an Irish bookie taking bets on which airline will be the next to go bankrupt.

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  • Jeff Linder

    I wouldn’t call this a lie per se. While yes, there is a CHANCE the court will not allow flights to continue, in Chapter 11 it is EXCEEDINGLY rare that a court takes action that will cause operations to change.

    Mesa air can be relatively comfortable in making that assertion, especially if they went in with a bankruptcy plan already in place (as is often the case).

  • Ben

    Edward, you’re obviously clueless about this subject. The only “tickets” Mesa sells for itself are for its Hawaiian operations and they aren’t part of the bankruptcy filing. As far as the United Express, Delta Connection and US Airways Express operations, the tickets are sold by the major carriers with whom Mesa has code share aggreements. Those carriers own the tickets and associated revenues, as well as the seats on Mesa’s flights. Ticket holders have no exposure whatsoever. I really wish that “experts” like you did some research before you post such garbage and alarm everyone. “Same old lies” indeed.

  • http://hasbrouck.org/ Edward Hasbrouck

    Jeff: Yes, it is likely that the court will give permission for Mesa Air to continue to operate flights, at least initially. But the lie is the categorical, unqualified claim that “Business *Will* Continue Unaffected” and that “Customers can be assured” about what will happen. “Likely” is not the same as “assured”.

    Ben: The conditions of carriage for all of the airlines that sell tickets for flights operated by Mesa Air (including Go, United, US Airways, and Delta), provide that when those airlines issue tickets for flights operated by another airline (such as Mesa), they “act solely as an agent of” the operating airline. Those terms are of questionable enforceability, but on their face, they provide that legally Mesa is the principal liable for providing the transportation, and the ticketing airline only an “agent”. And even if the ticketing airline could be held liable notwithstanding those terms (a possibility but not a certainty), that’s not the same as business continuing “unaffected”. If Mesa is shut down by the court, as it may (not necessarily will, but may) be, someone who (at best) has to arrange alternate transportation on another carrier, or who gets a refund from the ticketing carrier if no alternate transportation is available, wouldn’t be likely to consider themselves “unaffected”.

  • Jeff Linder

    My initial impression from reading the filing was that they had a creditor approved plan already prepared, which would have come as close to guaranteeing a smooth process as possible. If that had been the case, their spin would have been within the realm of acceptable, as in that case the odds of operations being affected would be somewhere in the realm of 0-1%..

    However, it does NOT look like all creditors are on board, which does at least allow for the possibility of interruption, which does make their statement a little optimistic. I still won’t call it an out and out lie (as they may be much more privy to the demands of their creditors and what the outcome is expected to be), but it definitely is over-optimistic.

  • Ben

    Edward, you are missing the point. Mesa, per se, doesn’t operate the flight as “Mesa”. They operate as a contract carrier for United, Delta, etc. Your reference to the contract of carriage applies when one airline (e.g. United) tickets a passenger on another (e.g. Delta). United collects the fare and remits it to Delta through the Airline Clearing House. In the case of a Mesa United Express flight United issues the ticket AND keeps the revenue. Mesa never gets the customer’s money and United is “on the hook” if the Mesa United Express flight is canceled. Mesa is paid by United on a per available seat mile basis and does not get the ticket revenue. As far as the relationship with the passenger, it is a United flight and unless United were to file for bankruptcy, there is no jeopardy for the passenger whatsoever.

  • http://hasbrouck.org/ Edward Hasbrouck

    Ben, I understand your point — but you are mistaken. Both Mesa and United, etc. would like you to think, as you do, that you are protected by the airline from whom you buy your ticket. But their contract language is cleverly worded to avoid that liability on the part of the major airlines for the performance or nonperformance of their “marketing partners”.

    It isn’t obvious (that’s deliberate), but Mesa Air *does* operate its flights with its own code, even when all the tickets are sold through other airlines (acting as Mesa’s ticket agents). “United Express”, “Delta Connection”, and so forth are *not* the names of airlines but are brand names applied for marketing purposes to flights actually operated by Mesa and other airlines.

    While it would be better for passengers if the contract of carriage treated Mesa and the other airlines that actually operate these flights as mere “contractors” of the ticketing/marketing airlines, that’s not what the passenger contracts of carriage say: Their plain language is that the ticketing airline (e.g. United) in issuing the ticket acts solely as agent of the operating airline (e.g. Mesa). The arrangements you describe between United and Mesa are irrelevant to the contract of carriage with the passenger, by whose explicit terms United is a mere agent and Mesa the principal.

    It’s *possible* that under some theory, through a successful Federal lawsuit, a passenger could get United or another ticketing airline held liable for a refund of money paid to them for a ticket for transportation which was to have been provided by Mesa, if Mesa discontinued service, but that is by no means certain, and would require overcoming the stated terms of the contract.

  • http://www.tripso.com/author/leocha Charlie Leocha

    Ben: As far as the relationship with the passenger, it is a Mesa flight, no matter how they are paid. United Airlines is merely the agent. Your way of looking at this is exactly what United and other code-sharing airlines want you to believe. In reality the truth of code sharing is that the airlines are completely separate and only have contractual agreements with each other. If the flight crashes the passenger’s relationship is with Mesa, not United, Delta etc. Pilot unions are separate. Maintenance is separate. The paint job might look similar to the major, but the airline is totally different.

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