[Congressional Record Volume 140, Number 71 (Thursday, June 9, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 9, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                      FARMINGTON SUCCESS: MESA AIR

                                 ______


                          HON. BILL RICHARDSON

                             of new mexico

                    in the house of representatives

                        Wednesday, June 8, 1994

  Mr. RICHARDSON. Mr. Speaker, I would like to commend the enclosed 
article from Business Week to my colleagues. The article, written by 
Eric Schine, relates the success of Mesa Airlines, headquartered in my 
district in Farmington, NM.
  Mesa Airlines, which began in 1980 as a small commuter airline with 
one airplane, is now one of the most successful small airlines of its 
type in the Nation. I would also like to suggest to my colleagues that 
the success of this company is an example of the importance of the 
Essential Air Service Program [EAS], a Federal Aviation Administration 
initiative which finances air service to essential areas of the country 
which would otherwise not benefit from scheduled air service. I know 
that in a largely rural State such as my home State of New Mexico, the 
EAS Program is vital to the continuation of much needed air service to 
communities that would otherwise not receive any scheduled 
transportation service.

                   [From Business Week, May 9, 1994]

                     Mesa Airlines Flying Too High?

                            (By Eric Schine)

       Farmington, N.M., like much of the Southwest, doesn't 
     reveal itself easily. In the hot, bright sunlight, its mesas 
     and gnarled landscape look brown and infertile. The town 
     itself is a dusty collection of bleached concrete buildings 
     and ramshackle trailer parks. Tucked away in New Mexico's 
     barren Four Corners region, Farmington is an oil boomtown 
     that isn't booming anymore. It's the kind of place where the 
     car lots outnumber the trees.
       But if you look closely when the light begins to angle, the 
     mesa country's richness and color start to emerge. Larry 
     Risley loves it there. While many Farmington workers choose 
     to commute from Durango, Colo.--a scenic, artsy enclave 55 
     miles northeast--the founder of Mesa Airlines Inc. is 
     building his dream house on 35 acres at the edge of town. 
     Larry L. Risley and Farmington were made for each other--
     simple and unpretentious. ``Where I come from, there was no 
     such thing as an MBA,'' Risley says.
       A little more than a decade ago, Risley could barely hold 
     down a job. Now, at 49, he's chairman of one of the nation's 
     most successful airline companies. Starting in 1980 with a 
     five-seat Piper Chieftain prop plane. Risley built a low-cost 
     commuter-airline empire that consists of eight separate 
     carriers spread across the nation--several of them tied 
     through marketing agreements to USAir Inc. and United 
     Airlines Inc. During a period when many airlines have 
     struggled just to stay aloft, little Mesa has lost money only 
     once in its 12-year history. Adjusted for splits, its share 
     price has increased tenfold since it went public in 1987. 
     Risley's 2.6% stake is worth a hefty $17 million.
       Lately, though, investors have begun to worry about Mesa: 
     The stock has traded down 26% since mid-March, to about 16\1/
     2\ (charts). Part of the decline is due to the general drop 
     in stock prices. But investors have also reacted to Mesa's 
     hints that its fiscal second-quarter earnings will be flat 
     due to creeping costs in one of its units. While analysts 
     still expect full-year profits to post a sharp gain over 
     1993, the bad news comes at a time when Mesa, with expected 
     1994 revenues of only $354 million, is embarked on a series 
     of buyouts and equity investments that could cost more than 
     $120 million. Risley has been soaring. But history is 
     littered with airline entrepreneurs who flew too close to the 
     sun.
       Same Feathers.--Mesa's biggest target appears to be 
     Continental Express, the sprawling commuter subsidiary of 
     Continental Airlines Inc. Sources close to the talks say Mesa 
     is weighing a deal to pay up to $60 million for a majority of 
     the unit. Trouble is, Continental Express, with about $350 
     million in sales, competes directly with Mesa units that fly 
     the colors of United Express and USAir Express. Consequently, 
     sources say, the unit would eventually have to be spun off to 
     shareholders as a separate company.
       A deal would be the second Mesa has struck recently with 
     Fort Worth (Tex.) financier David Bonderman, whose investment 
     group controls Continental. Bonderman has bid to finance the 
     emergence of America West Airlines Inc. from bankruptcy, and 
     Risley has agreed to make a $25 million investment for a 10% 
     stake.
       Meantime, Risley is busy putting the finishing touches on a 
     $32 million deal to acquire financially strapped CCAir Inc., 
     a commuter airline based in Charlotte. N.C., that flies as 
     USAir Express. He is also risking $3 million to purchase Sun-
     Air, which flies routes around the Virgin Islands and in 
     Puerto Rico. Mesa is even going international, taking a 24% 
     stake in a small commuter carrier in Britain.
       The question is, can little Mesa handle all this action at 
     once? Some think so. ``Every acquisition they've ever done 
     has improved earnings,'' enthuses one large institutional 
     holder. Others aren't so sure. ``They have an impeccable 
     record,'' says Kidder, Peabody & Co. analyst Samuel Buttrick, 
     ``but as Mesa expands, it becomes an increasingly complex 
     juggling act.'' Even Risley has concerns about a possible 
     Continental deal. ``It'll take a lot for my people to 
     convince me it would be in our best interest,'' he says.
       Soapy Sundays.--The problem isn't financing. Mesa's balance 
     sheet is strong, and it has $135 million in cash from 
     operations and secondary stock offerings. But Continental 
     Express alone provides a tough management challenge. The unit 
     lost $70 million last year, and Mesa would have to replace 
     its fleet, institute cost controls, and cull staff to turn it 
     around. Then, Mesa would have to structure a complex 
     transaction to spin it off. CCAir would require heavy 
     attention as well. And given America West's ups and downs, 
     Mesa investment in that carrier--though passive for now--will 
     demand Risley's vigilance.
       Taking risks, though, is nothing new for Risley. In 1982, 
     he and his wife, Janie (who now sits on the board) pledged 
     their small house and pickup truck against a $125,000 loan to 
     buy the plane they were using to shuttle passengers between 
     Farmington and Albuquerque. Janie sold tickets. Larry did the 
     maintenance. On Sundays, the couple relaxed with their young 
     son by washing down the plane and sprucing up its cabin.
       Looking back, Risley seems as surprised as anyone by his 
     unlikely success. ``There was never any grand plan,'' he says 
     with a shrug. The son of a firefighter and school teacher, 
     Risley grew up in Abilene, Tex., and hoped to emulate his two 
     older brothers who landed steady work as union mechanics for 
     Delta and American. Larry, who ``figured anything over a 70 
     was wasted effort,'' barely graduated from high school. 
     Instead of college, he joined the Army and found himself 
     stationed in Germany. He eventually went to trade school to 
     get his aviation mechanic's license.
       Risley never cottoned to working for anyone else. When he 
     did find jobs at general aviation airfields, he would soon 
     quit or get himself fired after flare-ups with his bosses. 
     While Janie worked as an X-ray technician, Risley held a 
     jumble of odd jobs to make ends meet. He sold burglar alarms 
     and worked as a janitor in a baby clothes factory. ``I was 
     really out of my element,'' he says.
       Risley's first attempt at going it alone came in 1970, when 
     he set up an aircraft engine shop in Waxahachie, Tex. That 
     didn't work out either. Risley quickly found himself deep in 
     debt after several customers welshed on payments. Risley says 
     he eventually made good on his debts; the shop ended up 
     folding.
       Risley finally found his feet in 1979 when his brother-in-
     law helped him get a job managing a charter service for Four 
     Corners Drilling Co., an oil company in Farmington. Risley 
     kept a fleet of 14 small planes going, ferrying drillers to 
     and from remote sites in the high desert. The business made 
     extra money with government contracts to fly residents of the 
     nearby Navajo reservation to hospitals. Everything went fine 
     until oil prices plummeted in 1980. Then, says Risley, 
     ``drilling stopped overnight.''
       Most of the planes were sold off, but Risley persuaded Four 
     Corners to keep one so he could start a shuttle service 
     between Farmington and Albuquerque. Risley advertised his 
     little airline on local radio and put up signs along roads 
     near the Four Corners Regional Airport. He found he could 
     charge half what rival Frontier Airlines Inc. was getting and 
     still make money. In 1982, the Risleys decided to buy the 
     Piper and go into business for themselves.
       Mesa's acquisition drive began in 1990 when Jonathan 
     Ornstein, a 31-year-old airline financier, entered the 
     picture. An executive with a tiny carrier called, Air L.A., 
     Ornstein first approached Risley about buying out Mesa. 
     Risley wasn't selling, but he liked Ornstein's brashness. He 
     hired the New Yorker and sent him out to scout deals for 
     Mesa.
       Ornstein, like his boss, lacks a college degree. But that's 
     about all the two have in common. They battle constantly over 
     the pace of expansion--Risley taking the more conservative 
     position. So far, however, their formula has been effective: 
     find an ailing carrier in a good market, slash staff and 
     institute cost controls, upgrade the fleet, and then let the 
     managers run their own show.
       Cost savings come in a number of ways besides lean 
     management. First, most of Mesa's units have code-sharing 
     agreements with major airlines that funnel traffic their way 
     without big marketing expense. Second, Mesa's 155-plane fleet 
     is largely standardized around the twin-engine Beech 1900 
     turboprop. Standardization allows Mesa units to share a 
     single maintenance facility in Farmington. And it lets the 
     parent--Beech Aircraft Corp.'s largest commercial customer--
     buy in bulk, assuring better prices and terms.
       Odd couple.--Since Ornstein came aboard, Mesa Airlines has 
     struck a profitable balance between making acquisitions and 
     minding operations. Given the recent flurry of dealmaking, 
     however, some industry watchers wonder whether Ornstein's go-
     go style is at last getting the better of Risley's 
     pragmatism. Risley looks at it this way: ``We are at two ends 
     of the spectrum. I'm an operations guy. Jonathan wants to 
     grow and make acquisitions. There's definitely a 
     controversial environment in the office, but that's what 
     makes us have a good team.'' The tug-of-war is currently 
     playing out over the proposed Continental Express deal.
       Sometimes, when it gets to be too much, Risley scoots out 
     to his 35 acres and chats with the workers building a new 
     house for him and Janie. He likes to point out the spot in 
     the yard where a large picnic area and gazebo will be--a 
     place for his extended family to gather on weekends and watch 
     the light change. ``People keep trying to frame me as a 
     large-business executive,'' Risley gripes. ``But when things 
     start to get too big, I kick and scream a bit.'' As Mesa 
     considers its biggest deal ever, a little kicking and 
     screaming may be a good thing.

                          ____________________