Apr
30
Mesa Air Group and Hawaiian Airlines have settled their differences out-of-court, under circumstances that leave Mesa’s Go as a local market player.
Hawaiian, which won a damage judgment of roughly $90 million, will settle for $52.5 million. It agrees to drop its damage claims against Mesa and Go. It gets cash now, when it needs it due to soaring jet fuel prices and whatever overtime it’s racking up filling needs created by the collapse of Aloha.
Mesa, which had a lot of money tied up in a bond posted with federal court during appeal, admits no guilt while settling the matter. If it failed to win reversal on appeal, damages would likely have grown based on harm done since the original ruling.
Aloha Airlines still has a suit pending against Mesa, which may yet go to trial late this year unless it, too, settles out of court. The possibility of damages is the last best hope for some kind of return on investment for the last owners of this company.
This is what Mesa did.
When both Hawaiian and Aloha were in their earlier bankruptcies, Mesa came forward as a buyer. It saw the books of both companies, and the strategic plans. It knew the revenue-split on codeshare deals with other airlines. It need the terms of vendor agreements and when those contracts would expire. It saw research on the market and on the customers.
Reviewing such inside information is called due diligence, and it is customary to sign a promise not to use the information against the company if the prospective buyer fails to actually buy the company. The promise applies regardless of whether the would-be buyer walks away, or has its bid rejected as too low. Mesa signed promises to both carriers.
It is not unusual in bankruptcies for competitors to step forward as prospective buyers. They see valuable information. They’re not supposed to use it, but they can’t forget it. The promise not to use the information against the bankrupt company typically comes with a commitment to return all documents within a year, but even if you keep no copies, you’ve still learned what you’ve learned. Misuse of confidential information is therefore very hard to prove.
The Mesa case was sharply different. A memo to his own prospective investors sent out over the name of Mesa CEO Jon Ornstein, when he was seeking funds to found a third Hawaii interisland carrier, explicitly said he knew the market because he had seen the plans of Hawaiian and Aloha. Whole paragraphs of Hawaiian materials were found in a Mesa memo long after the original text should have been returned.
Mesa’s chief financial officer wrote an email which appears to describe a plan to use a fare war to weaken the legacy carriers and drive one out of business. Mesa described the email to me later as having been a joke, but it came complete with charts. I had pictured a brief, facetious email, but it turned out to be a detailed battle plan report that was merely transmitted by email. It didn’t help Mesa’s case that the chief financial officer tried to erase his hard drive (the company later said he was deleting porn.)
The judge in the case found Mesa guilty and awarded damages.
It is not illegal to sell plane tickets at a loss. You may be doing it for a promotion, or to introduce the service to new passengers, or to hold onto market share. But to sell tickets at a loss for the purpose of muscling a competitor to the sidelines is considering predatory pricing, and that is illegal. Go is a smaller service than either Hawaiian or Aloha pre-shutdown, but its parent company is bigger, and the corporate pockets were deeper. That’s why Aloha ran out of cash before Go did.
Still open to argument is to what extent other factors played a role, especially soaring jet fuel.
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