February 12, 1995 in Business

Mesa Air’s Fortunes Sink, But Ceo Is Still Flying High

Wall Street Journal
 

For several years, Mesa Air Group seemed to thrive because of the woes of the rest of the airline industry, not just despite them.

The nation’s largest independent regional carrier set itself up to do for big U.S. carriers what they, most often, couldn’t. As larger airlines retrenched and shed their shorter flights, Mesa beefed up service at its network of commuter carriers, flying under the colors of eight airlines in different regions.

As part of that expansion, Mesa subsidiary Desert Sun Airlines, doing business as America West Express, plans to begin non-stop jet service between Spokane and Phoenix April 10.

At first, each move by Mesa seemed to boost its stock price. Earnings grew, too.

Now, the Farmington, N.M., carrier has stumbled. Its fiscal first-quarter earnings, released 10 days ago, were down 65 percent. Wall Street is perennially irritated by rosy projections that don’t pan out.

Revenue-sharing agreements with larger carriers - the boon that helped fuel growth - have become a mixed blessing as several of those airlines have been mired in steep fare wars. The stock, which had been as high as $22.25 in October 1993, now trades at around $6.50 a share on the Nasdaq Stock Market.

Curiously, though, Chief Executive Officer Larry Risley’s own fortunes have improved vastly in the midst of all this. Risley, who is also Mesa’s chairman, was awarded a cash bonus of $2.6 million for the fiscal year ended Sept. 30, in addition to his annual salary of $153,000.

The bonus stands out because it’s triple the size of his 1993 award and the airline industry has seen few bonuses in recent years, certainly not as lofty as Risley’s. That might change as a few, far larger airlines that reported their first annual profits in 1994 begin releasing their proxy statements next month.

Risley agreed in an interview that his bonus was certainly “material,” but “it’s not something that was different or capricious; there was an approved plan that was in place.”

Risley argues that his salary is lower than that of most chief executives for companies of comparable size, and that “as far as the absolute earnings of the company, it was an `up’ year. We felt that management - myself and other key employees - had done what we felt was a credible job for the company, and for shareholders.”

Although the bonus is certainly within limits set by a managementincentive program Mesa arranged several years ago, it’s exceedingly generous, compensation experts say.

“That pay package is remarkable for a $400 million company,” says John McMillan, a managing director of the firm William M. Mercer Inc. Risley’s salary “is ridiculously low,” McMillan adds. “But it’s being used as a reason for having an abnormally high bonus.”

By contrast, AMR Corp. Chairman Robert L. Crandall received a salary of $600,000 in 1993 and no bonus, although he got additional compensation of nearly $400,000 for performance returns on deferred shares. Herbert D. Kelleher, chairman of Southwest Airlines, in 1993 received a $395,000 salary and a $150,000 cash bonus, in addition to stock options.

PaineWebber Inc. airline analyst Sam Buttrick said Risley’s compensation “is entirely inconsistent with recent results and displays a disregard for Wall Street expectations.”

Indeed, Mesa is developing something of a reputation for raising, then dashing, Wall Street expectations. Analysts started looking askance at the carrier last summer, shortly after its new chief financial officer, Stephen Jackson, began an unusual practice of forecasting its per-share earnings five quarters in advance.

“We’re attempting to get as accurate and detailed information as possible to airline analysts,” Jackson said. “Most have complimented us on that effort.” He added that, “Of course, things come along, and that’s where we have had a process of updating our forecasts quarterly.”


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