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Mesa Air Group, Inc (MESA) Q1 2019 Earnings Conference Call Transcript

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Mesa Air Group, Inc  (NASDAQ: MESA)
Q1 2019 Earnings Conference Call
Feb. 05, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome, and thank you for standing by. At this time, all participants are in listen-only mode. During the discussion, we will conduct a question-and-answer session. (Operator Instructions)

Now I'll turn the meeting over to Mr. Jonathan Ornstein. You may begin.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Hi, operator, thank you, and thanks everyone for joining us on the call today. As the operator indicated, this is Jonathan Ornstein, Chairman and Chief Executive Officer. On the call with me today are Mike Lotz, our President and Chief Financial Officer; Brian Gillman, our Executive VP, General Counsel; and Darren Zapfe, our Vice President of Finance.

I'd like to ask Brian to read the Safe Harbor statements, please.

Brian S. Gillman -- Executive Vice President, General Counsel and Secretary

Thanks, Jonathan. Before the presentation and the comments begin, Mesa would like to remind you that some of the statements in responses to your questions in this conference call may include forward-looking statements. As such, they are subject to future events and uncertainties that could also affect our actual results to differ materially from those statements.

Also, please note the Company undertakes no obligation to update or revise these forward-looking statements. Any forward-looking statements should be considered in conjunction with the cautionary statements in our press release and the risk factors included in our filings with the SEC, which Mesa encourages you to read. In addition, please refer to our press release in the Investors section of the Mesa's website to find additional disclosures and reconciliations of non-GAAP financial measures that will be used on today's call.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Thank you, Brian. Okay. I'd like to go over sort of the highlights of the quarter, talk to you a little bit about our financial results and some of the things we've able to achieve and those things that we are looking forward to achieving. We are pleased with the financial results. They are certainly, we think, in line with where we thought we'd be and we feel that, more importantly, some of the key operational issues we've been able to move forward quite nicely, in particular in the area of pilot hiring which has been a big challenge for the industry and our reduced attrition resulting from our -- which resulted in our continuing ability to increase block hour production.

As a result, block hours were 115,000 for this quarter, a 17.7% increase from the same quarter last year and a 2.2% increase from the prior quarter. We're also providing guidance for next quarter block hours to be 112,105, which although lower than the current quarter, it is about flat when adjusting for the February has only 28 days. Although we don't expect the government shutdown to affect us, we do have a simulator that has been delayed due to a FA sign off. This has been rescheduled for February 12, but again we're not immune to the -- in the event of a shutdown.

As you know, we recently announced that we closed on a $91 million debt refinancing at significantly lower rates, one of the key items we had going forward, and we are pleased that this was completed. Also, very importantly, we signed a term sheet subject to final approvals and documentation with GECAS for the purchase of 10 of our CRJ-700 aircraft currently operating at United. Upon completion of the transaction, we have reduced the number of leased aircraft to third parties to 18. And I think it's important to note that we did acquire these 10 aircraft in anticipation for their further use within our fleet. On the United side, to that point, we continue to have very productive discussions with United. I know this has been an ongoing topic for longer than any of us anticipated, but we remain highly confident on the CPA extension on the 20 CRJ-700s, which of course gave us the confidence to buy 10 of those aircraft.

Beyond our existing business, we continue to explore potential expansions that includes increased CPA flying and other opportunities previously discussed, including new partnerships and cargo. We believe as a low-cost regional operator, we are well-positioned to take advantage of these opportunities. On the operational side -- on operational performance, we had a controllable completion factor of 99.5% in the quarter, up nicely from 99.1% in fourth quarter 2018 and for quarter two fiscal '19 to-date, we are at 99.7%, another improvement over the previous quarter.

I'm going to let Mike walk through some financial highlights and I'll get back to you on the couple other strategic issues we'd like to discuss with you.

Michael J. Lotz -- President and Chief Financial Officer

Okay. Thanks, Jonathan. So for the fourth quarter -- for the first quarter we reported earnings before taxes of $25 million, this is a significant increase compared to the same quarter last year where we reported earnings before taxes of just $800,000. Additionally, we reported $5.9 million of income tax expense for net income of $19.1 million or $0.55 per share.

Also from an income tax perspective, although we reflect income tax expense of $5.9 million for accounting purposes, we will not pay any cash taxes as we still have a significant NOL of approximately $415 million. This is up from previous year's NOL of roughly $300 million. Most of that increase is due to our purchase of leased aircraft last year. We believe, based on our current projections, that we will not be a cash taxpayer until 2024, 2025.

Our EBITDA was $58.2 million and EBITDAR was $72.3 million, again these are significant increases from the same quarter last year where EBITDA and EBITDAR were $30.9 million and $49.2 million, respectively.

On the revenue side, we've reported contract, where CPA revenue excluding pass through items of $175 million, an increase of 10.4% over the same quarter last year of $154.5 million. Also included in revenue is pass through revenue, which is repay dollar for dollar and has no P&L impact, but for the first quarter, we reported $7.7 million compared to $10.3 million for the same quarter last year.

On the expense side, again in order to be well situated to take advantage of potential growth and increased demand for even more block hours from both of our partners. We continue to hire more partners than the associated attrition levels would require. As a result, while new training -- pilot training expense will decline over time, we do not believe that it will decline as rapidly as we had previously anticipated. That being said, we believe this is a strategic investment in our long-term future and we estimate the added expense to be between $4 million and $5 million.

Our engine expense for the quarter was only $2.4 million, compared to $17.2 million for the same quarter last year, when we were still in our heavy maintenance cycle. As we have said, our engine expenses, although predictable, can vary significantly quarter-to-quarter and year-over-year as we are on the direct expense method for engine accounting.

With Q1 at $2.4 million, our guidance for Q2 is $8.9 million, which will be more in line with our expected run rate going forward. Also, we have retimed our heavy C-check expenses going forward based on our recent Bombardier C-check escalation program and changes to accommodate our partner request. We are looking at C-check expenses to increase roughly $4 million to $5 million for the remainder of the year. Again, similar with the engines, this is a timing issue. I'd like to add that the purchase of the 10 CRJ-700 aircraft will have a positive impact on earnings, similar to the previous lease buyout we did of roughly $4.5 million per year over the next few years.

On cash and liquidity, we ended the quarter with $103.6 million in cash. Total debt on the balance sheet for Q1 was $878 million, down $37 million from the $915 million from the previous quarter. During the quarter we did pay $21 million for six engines we purchased. These engines were included in the collateral pool of the new debt financing we recently announced, which allowed the LTV to be significantly reduced and achieve the lower interest rates. We also identified two additional engines at significant discounts, which we will purchase in Q2.

Other CapEx for the remainder of fiscal 2019, again we'll have the 10 aircraft for $70 million, the two engines for roughly $10 million and then we're looking for the remainder of the Company roughly $10 million to $12 million primarily in maintenance CapEx. Lastly, on cash, we still have a revolving credit facility of $35 million, which remains available to us and we anticipate both extending and expanding that over the next few months.

I'd like to turn it back over to Jonathan now for further information.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Yes, hi. Thank you, Mike. One of the things I want to emphasize that Mike pointed out was our investment, and truly we view it as investment in pilots. We are currently attriting out generally between 20 pilots and 25 pilots a month. We continue to hire upwards to 50. We believe that there will be future opportunities for us to put those pilots to work and given our success, which I think is probably industry leading, we will continue to hire people above and beyond our current requirements.

We have moved -- as lot of people know, we had an issue in the past, taken quite a bit of time to get people through training as a result of lack of sim availability worldwide. That has been alleviated pretty significantly, and to give you an example in our Embraer 175 fleet, where, at one point, the training footprint was over 200 days. I believe that number is now down closer to 75 days and we think we can bring that down even further. But we are making a pretty significant investment and we do that in anticipation of potential opportunities down the road that we would like to be prepared for.

I'd also like to take a moment to talk about the 8-K we filed with American. Just to walk through that, about a year ago, American talked about -- us about raising our performance levels. As many of you know, that contract was negotiated initially almost 17 years ago. It's been through some modifications, but the performance levels were certainly far below that, which the industry is currently operating. All the levels were, as I said, significantly below that. We went back to American and said, look, we're willing to sort of, I guess, for lack of better term, put our money where our mouth is, we know we can operate with the best carriers, but we do need some issues addressed that were important to us and they were willing to do that in return for the ability for us to operate at a higher level.

For example, some of those issues that were addressed were the number of spares we operated, we increased that by two. Requirement for a certain amount of, what we call, touch time, which is time in the hangar and additional block time and hangar time. And we did that primarily by pulling two aircraft out. There is no obligation for us to put those aircraft into that system, but we did have the ability to do that and we will use those airplanes strategically going forward to maximize performance throughout our system. We traded that increased performance requirements.

One of the things that we did was, American made it clear, they didn't quite frankly want our money, they want the performance and felt that as long as we can perform, that'll be great. But we actually got some nice incentives if we were able to perform at the levels that we believe and I can tell you that in the first month that we started tracking the levels, we actually would have earned incentives and passed all of the tests that -- the new tests and the new levels of performance that we needed and that's prior to any changes in the fleet that may give us the opportunity to have a couple more spares available.

In return for that, we did give them the right to pull down a few aircraft, six aircraft over time. The first one that could come out would be in September. But again, given where we are operating today, we do not view that as a likelihood. We feel confident that we can move forward very productively with our partners in Dallas. I think a large part of that also had to do with the fact that, as many of you know, we have a contract that expires in a couple of years and I think this is effectively a test for us to see, can we perform at that sort of new industry levels that are out there and do so consistently. We remain confident that we can do that and we feel that this was in fact while something that we did in cooperation with American, we understand their requirements, and we've now dedicated ourselves to meeting or exceeding all of those requirements going forward.

I just wanted to also mention that even with the two aircraft out, we have a net addition of block hours year-over-year and that we think that the impact is less than a $1 million, but again, those -- we think that given the guarantees that we now have in the system regarding scheduling and the additional aircraft availability, that will be a trade-off frankly that we would have made regardless.

In 2020, we don't believe there -- given the block hour projections and where we'll be, we don't think there'll be any impact at all. So I just thought we'd go through that a little bit and let people know. I think it really gives us an opportunity to show our friends in Dallas with whom we've had a relationship since Mesa's investment back in America West that we can perform like I said at any level given the proper resources.

With that, I'd like to open that up for questions. Before I do that, I want to mention one more thing, I apologize. I will be at the Cowen Aerospace Defense Industrial Conference in New York City. I'm actually leaving later today. If anyone would like to talk to me when I'm in New York -- Capri, (ph) New York. I think you could call over there and maybe happy to set up a one-on-one appointment. I will also be at the Stifel 2019 Transportation & Logistic Conference in Miami, February 12 and 13, same goes for that, and then at the Raymond James 40th Annual Institutional Investors Conference in Orlando, March 3 through March 6. So if you have any interest in getting together with Mike and I, please feel free to call any of those firms and set up an appointment to see us.

We'd like to take one moment at the end. Of course, we'd like to thank all of our employees who truly are just doing an outstanding job every day. I tell them that I believe that we are in a noble industry. We carry literally -- industry, almost 1 billion people a year safely. We've done that for now over a decade and I'm really pleased with the job that our people are doing and the effort they put. They are all working very hard and performing at the highest level and I'd like to thank each and everyone for what they've done.

With that, I'd like to open it up for any questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question is coming from the line of Savi Syth from Raymond James. Your line is now open.

Savanthi Syth -- Raymond James -- Analyst

Hey, good morning. Just a question on the block hour side, if I can get some clarity. I appreciate the kind of 28 days in February. Historically, the 1Q and 2Q have been somewhat similar in block hour production. Is that a function of the fact that you're now at kind of very high level utilization? And then just on that same topic, I was wondering if you could talk about kind of the rest of the year, what level of kind of block hour production we might expect, especially kind of given -- in light of the adjustments with American?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Well, yes, Mike, I mean you want to go through that.

Michael J. Lotz -- President and Chief Financial Officer

Yes, I don't think there is anything -- I think in previous years, if there was any change in the second quarter with increase which is probably more a function of the fact that we were growing during that period as opposed to being stable where, if we were flat, that quarter generally would have slightly lower block hours because of the number of days in February. And going forward, we are still saying, we're going to be at this 8.7 number even taking the aircraft -- the two aircrafts out. We still think we're going to hit that same level and potentially slightly higher, because American as part of this has asked us to increase some of our block hour productions.

Savanthi Syth -- Raymond James -- Analyst

Got it. And if I might, I had a quick follow-up on the off-lease purchases. Mike, is that -- are you still thinking maybe a $4.5 million pre-tax benefit and when do you think that might close?

Michael J. Lotz -- President and Chief Financial Officer

Yes, we do think it's about $4.5 million and we think it will close certainly by June. We're trying to get it done sooner than that.

Savanthi Syth -- Raymond James -- Analyst

All right. Thank you.

Operator

Thank you. The next question is coming from the line of Andrew Didora from Bank of America. Your line is now open.

Andrew Didora -- Bank of America Merrill Lynch -- Analyst

Hi, good morning, everyone. Mike, maybe to ask the block hour production question differently. I think on the last call you talked about the 114,000 to 115,000 quarterly run rate. Is that still on the table or should we be thinking about, I mean, a little bit of a haircut to that number in the back half of '19?

Michael J. Lotz -- President and Chief Financial Officer

No, that we shouldn't be thinking of a haircut in the back half.

Andrew Didora -- Bank of America Merrill Lynch -- Analyst

Okay. I'll keep that sort of going forward after the March quarter. And then just from a flight ops cost perspective, I know you touched upon it in your prepared remarks. It was down year-on-year, it's not as much as we thought. Right now, when you look out, when do you think you can kind of maybe get back to the run rate you had before some of these pilot issues crept in, say, like -- I think it was like 18 or -- 18 plus months ago?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Let me tell my overall view and then Mike could maybe fill you on the financial piece. Right now, with the pilots that we have remaining in training and given our current attrition rates, we will end up, if we just didn't hire another pilot right now, in three months we'd be long pilots. But our view is that stockpiling and having additional pilots is a good investment, because we do feel that there are growth opportunities available to us that the biggest issue our partners will have will be, can you stack those aircraft. We see other carriers that garner business only because they have pilots and not necessarily based on the fact that, from a financial perspective, they may be the best decision.

So we've decided to spend a little extra money in order to put ourselves in a position where we can talk to United American and say, hey, not only are we properly staffed, which we think today we are, I mean, for example, last month we had a total of three crew cancels out of almost 10,000 flights and that was -- you're going to have people call out sick in an outstation. But we want to be in a position where we're long, so we had initially had anticipated bringing that number down beginning in the year. We continue to leave that number closer to 50 rather than we could be down closer to 20 or less. And I think that we're going to continue to monitor attrition closely.

We feel that these opportunities will be there for us. But we can dial that back quickly if in fact we feel things will change. But we do anticipate that even with the opportunities that we see, even with the block hour production that we feel confident we can do, and with the additional hours that we think our partners would like us to fly that the current level of hiring probably would decline. Mike, when do you think we'd probably pull it down again?

Michael J. Lotz -- President and Chief Financial Officer

Probably, maybe in Q3, Q4.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Yes.

Michael J. Lotz -- President and Chief Financial Officer

Where we initially thought maybe Q1, but we just really want to position ourselves for opportunities and one of the key factors in positioning ourselves is not just to have enough pilots, to have a good cushion to take on additional aircraft and we don't want to -- we want to make sure we were in that position.

Andrew Didora -- Bank of America Merrill Lynch -- Analyst

That's helpful, guys. And then just lastly on the model, like G&A did step up pretty meaningfully sequentially, a couple of million dollars and close to 20%. Is the $12 million you reported in the most recent quarter now a good run rate versus I think there was the $10 million you had in the September quarter?

Michael J. Lotz -- President and Chief Financial Officer

Yes, this should not have been -- there should have been no significant increase for this quarter that would have driven G&A to a higher level on a run rate basis. So I wouldn't use this quarter as the run rate, but we can go back and look and see what was the driver this quarter to reinforce that.

Andrew Didora -- Bank of America Merrill Lynch -- Analyst

Okay, great. Thank you.

Operator

Thank you. The next question is coming from the line of Joseph DeNardi from Stifel. You may now ask your question.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

Yes. Hey, good morning, Jonathan, thanks for the conference plug. Can you just kind of provide some updated thoughts? I know you mentioned it briefly in your prepared remarks just on the United contract. Like why you think it's taking so long to get it done and can you just connect the dots on your decision to buy the aircraft and how that relates to the confidence you have in that partnership and in the contract?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Yes. Okay, couple of things. First off, buying the aircraft was a good economic decision regardless. GE and -- we have bought quite a few aircraft off of GE recently. There is some -- it makes a lot of sense for us, particularly if we think that those aircraft will stay deployed with us rather than let the leases expire. We feel confident that those aircraft will be continued to be deployed and as such, we're willing to make the purchase price and buy the aircraft off of the leases.

The 700s in particular, it's interesting how that aircraft has evolved. At one point, it was sort of a little bit of an odd duck being almost 76 seats. But now that aircraft has proven to be really multipurpose, in terms of its flexibility, it has great performance. It can perform in any environment in terms of hot and high, and I think that we are seeing prices on those aircraft actually go up over the last year and it's a dual class aircraft. So we think it's a really good airplane, it's below the scope in a lot of carriers. We think that there is really some opportunities with that aircraft going forward. And again, I think you can connect the dots. Obviously, we remain highly confident in terms of our United contract and relationship or I would say it's probably fair to say we probably would not have purchased those aircraft.

So we think that the aircraft has a lot of life left in it. There's a lot of opportunity for it. As I said, they're becoming more scarce. There is only slightly over 200 built and we are in fact out looking for additional aircraft. So, there's a lot of reasons to buy the aircraft, just the economics of purchase them of lease and in addition to our confidence that the aircraft will have homes at one of our partners. So I think that's sort of where we are in terms of that.

And going forward, again the economics on those aircraft keep getting better for us. As you know, we are in a position where a lot of our debt is getting paid down to very low levels. We can either pay them off or extend them out at significantly lower cost and that again gives us just increased flexibility. And I've mentioned too that, we also have that flexibility on the 900 fleet, as we go forward, as the debt level on those -- that hopefully continue to decline rather precipitously as we reach the end of the debt cycle. Does that -- I hope that helps gives a little more clarity into our view on the 700s.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

Yes, it does. I mean, do you have any kind of thoughts or insight into timing on when the United contract could get resolved or not really because it's not --

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Yes, well, United had a lot of things to work on lately, not the least of which has been the ExpressJet deal, which took longer than anticipated and they started -- are in a position where even as a big company, they have only so many resources to do this, working with people at United who we've known forever, people we've known since Continental age. Mike and I working back at Continental in the '90's, the fellow that runs the United Express operation was a close friend of ours from back in 1995.

So maybe part of the issue is, we know they have a lot to do. We feel confident, so we don't maybe pressure them -- other carriers might get something done, because again we feel confident that we may be at the end of the line, but we're in line and the right thing will happen when it does. So particularly, also given that Scott Kirby is over there now, also is a close friend of Mesa's. Again, we feel confident that the aircraft will find a home and we think that there will be future opportunities with United if we can continue to do the job that we've been able to do and continue to keep our costs in line where they've been. Again, we believe we're the lowest cost operator and that's not such a bad place to be when you're looking at additional business.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

Okay, that's helpful. And then, Mike, you mentioned the added expense for the kind of investing in your pilots and maintaining a bench there $4 million to $5 million, not really a small number for you guys. So what sort of growth in aircraft do you consider in order to justify making that investment? I mean, I think in the prior plan that you guys have, you didn't really assume any aircraft growth through 2020, it was pretty flat. So has something changed that kind of gives you guys more confidence that you can pick up additional aircraft or is that always kind of upside to the plan?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

The only thing is that we have seen business go to other carriers given the fact that they can make the statement, a true statement that they have significantly more pilots than they currently need to operate. We want to be in that same position. We're not doing it, though, just to totally speculate. Obviously, we believe that there are opportunities that are potentially available to us that we'd like to be prepared for and be able to take advantage of. So, yes, there's been a change in that. We think that there could be some opportunities and that we want to be prepared to take advantage of those. And we're willing to make, what -- it's somewhat of a bet, but remember we're always going to have attrition.

So, even if we are completely wrong, if we over-buy, call it, a 100 pilots, which would be enough pilots to stack 10 aircraft, I think that we would look at it like, OK, we made a bet, but we could burn that number off in four or five months. And so that -- it's not the initial expense, which like Mike talked to is $4 million or $5 million. Again, in a funny way it's sort of like timing because if in fact we find out we're wrong and for some reason some of the opportunities we feel do not come to fruition, we have pilots that we can then, for example, slowdown training or maybe stop training for some period of time because of that staffing.

And I also mentioned too that -- we've talked about United. But I also think that we've had the opportunity to effectively reset with American, and I think there could be additional opportunities with American particularly just in terms of flying even more hours as their confidence grows that we have the staffing and we're working very closely with the folks there. They've been very helpful over the last 90 days, helping us to achieve these goals, and we continue to work closely with them. It is in fact our longest relationship and one that we value and one that we're going to do everything we can to see that not only does our fleet continue to operate them, but maybe there'll be some potential opportunity down the road once we've demonstrated our ability to do the things that they've asked us to do going forward.

Michael J. Lotz -- President and Chief Financial Officer

Yes. And just add to that, in addition to just potential growth is also potential additional block hours that our partners continue to come to us. We want to be in a position to be able to say, yes, we can take on whatever block hours you're able to schedule us at and those additional pilots will give us that flexibility as well.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

The other thing I want to mention too, which I think is important, given our cost structure and given the fact that these aircraft we think will be highly flexible given that, for example, in our CRJ-900 fleet, there is a point in time, not too distant future where we will own 49 out of the 64 aircraft outright. The cost structure on an aircraft that's owned outright is pretty low and as a result, we think that there are other opportunities with maybe sort of non-traditional, non-op carriers to provide service potentially in a different configuration where we could be extremely cost effective in the low yield environment.

So we are looking at all kinds of options. We think it's very exciting that we've even had those kind of conversations and we think that when we put pencil to paper and look at the numbers, we feel really good about where the cost structure will be on the aircraft as we go forward. We've also, I think, been one of the first carriers to sort of figure out the engine riddle. We only did it, mother is -- necessity is the mother of invention. We were the first carrier out of the shoot on the CRJ-900s. We were -- had to deal with significant engine issue. We've been able to work our way through it. We've sort of figured it out where we need to be going forward.

And as Mike discussed, a lot of our CapEx is purchasing basically every engine that we come across, whether it's new or used and we think that also bodes well for the future that we're buying these engines that are brand new on five-year paper, we will own the engine outright in five years, have no expense, and that aircraft engine can fly for another seven or eight years before it needs the big significant LLP overall and again we've already paid for it.

Michael J. Lotz -- President and Chief Financial Officer

We will have our large people own the aircraft.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Right. And along with the aircraft that we will own outright. So we're looking forward, we feel that there's a lot of good things in the industry for us. Clearly, the best thing that could happen would be a relief of the scope. But as most of you know, scope is a difficult issue, understandably, but we have high level of confidence that over time even with the existing scope language, there will be opportunities for us to grow both with our partners and with potentially new partners.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

That's helpful, Jonathan. Thank you for the thorough response. Just lastly from me and then I'll get back in the queue. You mentioned kind of the need to improve performance with American and that this is kind of a test run. What metrics can we monitor to assess how you're doing relative to that?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Well, the major metrics that all folks are looking at, right, are things like controllable completion factor, departures within zero, things like that. You can see that we've put a lot of effort in that already going from 99.1%, 99.5% to 99.7%. But there's no doubt and I think American made a very good argument that the performance levels that were in the contracts that were over a decade old have just changed. I mean, to give you an example a 99.1% completion rate back when we signed this contract would have put us into incentive. I mean it was a -- it'd be a great completion rate. Now 99.1% is sort of not barely acceptable and the performance levels at both American and United have just been raised significantly and we just need to perform at that level if we're going to be competitive.

Costs are obviously important, but no one is going to buy you because you're the lowest cost if you can't operate at the levels that they expect in today's environment. So we have a obviously two-pronged attack. One, it's been on the performance side to show American that we're able to do that and I think, like I said, if you look back on the last 30 days, as we started monitoring this, we were above all those -- all their requirements, and in fact at this new incentive level and at United we continue -- we are blessed with a new fleet of E-Jets, which helps a lot. And also, United's scheduling policies that allow us to do maintenance in our hubs, which really has helped us in -- our performance levels there have been historically have been good.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

Thank you.

Operator

Thank you. The next question is coming from the line of Helane Becker from Cowen. Your line is now open.

Helane Becker -- Cowen & Company -- Analyst

And thanks very much, operator. Hi, guys. Thank you for the time. Just two questions. Jonathan, the first one is, with the change in the CPA agreement with American, is that impactful at all to profits?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Mike, do you want to --

Michael J. Lotz -- President and Chief Financial Officer

Is what?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

The change in the CPA with American, how is that going to impact profitability?

Michael J. Lotz -- President and Chief Financial Officer

Yes, Jonathan touched on it little bit earlier. But in addition to the two aircraft that are being removed, American has also indicated their desire to increase the block hours on the remaining aircraft. So for this year -- for fiscal '19, we expect that to have a minimal impact on our profitability, less than $1 million and in fact, when we look into 2020 at the projected block hour production at American, it's actually higher than what we had looked at a few months ago and that's with two less aircrafts. So again next year will be no impact.

Helane Becker -- Cowen & Company -- Analyst

Okay. And then just to clarify, is that two spares in or four spares?

Michael J. Lotz -- President and Chief Financial Officer

Yes, well, it's actually just the CPA has 64 aircraft and we're going to remove two aircraft in the CPA to go from 64 to 62. And those two aircraft that come out of the CPA, they'll be available to us anywhere in the system we want to use them, whether it's at American, United, whatever (inaudible) our initial plan is certainly to use them to support the American operation.

Helane Becker -- Cowen & Company -- Analyst

Okay. And then just on that -- final question on American, promise. Is it their problem or your problem, because I feel like they had really poor operational performance last summer for sure and they're trying to figure out what's going on there, and I know they don't do a very good job in the mornings of getting the first flight out of the gate on time. So I'm just wondering how much is really your issue versus their issue or is it all their issue?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

American had to integrate two big operations. If you look at their numbers actually, over time, I think they've done a incredibly good job in terms of integrating those operations and their performance. Remember, they're operating in some difficult hubs. JFK is not the easiest hub, Chicago is not a easy hub, and even Dallas can be impacted by weather pretty significantly. So I think that it was much more an issue of us in terms of just meeting the appropriate resources in terms of, for example, being able to do maintenance in the hub, which we recently were granted. We just opened up our hangar there in October in Dallas, that was very important, having the adequate touch time. But on the other side too, I mean, I don't want make it appear that -- we also had to do some things internally and make some changes just because frankly the performance levels have changed since that contract was signed over a decade ago.

So, no, I don't think it's American at all. I think that in fact their involvement with us and the people we speak to, we find to be -- have been incredibly helpful, incredibly knowledgeable, and very constructive and productive for us. So as much as I'd like to be able to do that, I would tell you that, no, I don't think so. I think the biggest issue that we had, which we were -- we had consultants come in a year ago and look at it, our fleet is getting a little bit older.

We are the first operator of CRJ-900s and the argument that we made was, look, we really like to do that, but we look at our newer aircraft that we operate, both at American newer 900s and also obviously the ERJs, the E-Jet, they perform at a higher level. It's not dissimilar to American's operation of MD-80s. They're not the same as a brand new 737 MAX. I mean, it's just not the same aircraft and so that was why we felt we just needed some additional touch time in maintenance and the opportunity to have a few more spares available to us.

I think with those things and sort of coming to grips with the reality of the situation and there are things that we did too. I mean, I don't want to make it appear like we did not make some changes, we most certainly did. But I think that -- no, I -- the answer to your question is, our future is in our hands, we just need to do the right thing. Our partner American in fact have been very helpful. And it's a long relationship, all the people who were there, making those decisions are people we've known for a long time, from Doug Parker on down and I think that this whole process has been in fact very productive and we've set the table nicely for the future for both companies.

Helane Becker -- Cowen & Company -- Analyst

Okay, great. And then my last question is just, can these aircraft be used in Europe if there are opportunities there? And do you think there are maybe some opportunities in that market?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

The fact of the matter is, there are lots of -- there are a fair number of regional jets put in Europe. Europe is a little bit different just because -- smaller and the aircraft need a little bit longer legs than for example the big turboprops that are there, but we have looked at European opportunities, one of the areas that we have taken a look at and we do think that there could potentially be opportunities there in terms of potential on the CRJ's, particularly given where their cost will be as these aircraft, the debt gets paid off. So the answer to your question is, yes, we think there are definitely opportunities in Europe and we've begun to take a look at that.

Helane Becker -- Cowen & Company -- Analyst

Great.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Mike and I operated over there for almost half a decade with Virgin Express and so we're familiar with the environment.

Helane Becker -- Cowen & Company -- Analyst

Great. Thanks, Jonathan and Mike, and thanks for your support of our conference and we'll see you tomorrow.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Great. Thanks. Look forward to seeing you.

Operator

Thank you. The next question is coming from the line of Savi Syth from Raymond James. You may now ask your question.

Savanthi Syth -- Raymond James -- Analyst

Hey, thanks for the follow-up. Just a high-level question, Jonathan. The share performance has been a bit disappointing, partly due to I think markets and not necessarily anything in your control. But I was just kind curious what your thoughts are that investors need to hear that is really going to build back that confidence and what you think is really going to boost the shares?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Sure. I think it's a number of issues. One, while our numbers have been good, I mean, clearly the uncertainty around the extension on the 700s has been problematic. I know that talking to investors, some people were spooked a little bit by the ExpressJet announcement. We were not concerned to the extent that other parties might have been. And I think that we need to get that resolved and hopefully, again, I know we have some degrees now like a broken record, but we feel confident that we will get that done and hopefully in the near future.

I think that the other issue, which clearly is an issue and it's sort of the elephant in the room, we do have 25 million shares that get unlocked. I believe that occurs tomorrow. While the stock price is down, it's still a lot of the initial -- the shareholders that own the stock from the days that we were basically private, a lot of them bought the stock at very low prices and so there could be some pressure there. And I think that's a concern. We had hoped that the stock price is a little bit higher, we could have done something on a more organized basis with them. Everyone seemed anxious to work toward constructively to do that, but at this point, I think we just have to sit back and just continue to deliver on the numbers and over time work our way through it.

But I do think that between the United deal being delayed beyond what we anticipated for sure and the fact that there is that overhang are the two biggest issues that are probably going to affect our stock price going forward. Again, that's just my own thoughts and speculation. But I think that once we work through that, we do feel that our numbers are pretty decent and we can continue to perform at levels where the stock can offer an interesting opportunity. I'll also say that one of the areas that we have discussed, we have not taken any action, but it was brought up the at the last Board meeting is that, if we feel that the valuation of the Company remains at below what we think the true value is, in spite of the fact that we just recently raised money at about $12 a share, if in fact, for example, if there is any kind of increased pressure due to the lockup release, we would contemplate some type of buyback arrangement to further support what we feel is the long-term value in the Company.

Savanthi Syth -- Raymond James -- Analyst

Very helpful. Thank you, Jonathan.

Operator

Thank you. The next question is coming from the line of Kevin Starke from Owl Creek Asset Management. You may now ask your question.

Kevin Starke -- Owl Creek Asset Management LP -- Analyst

Hey. Further to the last question, has the Board given any thought of simply paying a dividend?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

I think that we just sort of began the analysis. There's a lot of mixed feelings regarding stock buybacks. I saw there was a big article I think in the New York Times today about its impact. But sometimes I think that the stock buyback is probably the best dividend that you can offer. But again there is nothing that we wouldn't consider, but I think, again, we also have to be judicious. We do think that there are real opportunities out there and if we were to make acquisition of additional aircraft, for example, given that our appetite is only toward purchase, that would require a fairly significant amount of cash to make down-payments on new aircraft, for example. So at this point in time, we are just sort of contemplating various ideas and -- but again we think that we'd let this play out a little bit further and see where we were and see if we in fact can put together the United deal, which again we are highly confident we will, where that leads us.

Kevin Starke -- Owl Creek Asset Management LP -- Analyst

Thank you.

Operator

Thank you. The next question is coming from the line of Joseph DeNardi from Stifel. You may now ask your question.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

Yes, thanks. Mike, just given some of the moving pieces here with the American contract amendment, the financing, and I guess the investments you guys are making in the pilots, what's kind of the net effect of all these different moving pieces relative to earnings? Is it neutral or kind of positive?

Michael J. Lotz -- President and Chief Financial Officer

Yes, it's probably neutral to slightly in the less than neutral. I mean, we have $5 million in pilot costs. I mentioned the C-checks for $4 million or $5 million. The engine seems to be coming in below where we had initially projected, the GECAS buyout will have a positive benefit again if we don't get it done until June, then it'll only have a few months impact to this fiscal year. So it's neutral to slightly below that.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Yes, and I think it's -- I think to add further to that question, it really is dependent upon how -- every time we acquire a pilot, we estimate the expense to be about $100,000. So between bonus and training and not productive online right away, I mean that's a big acquisition cost. We're not going to do that for very long if we don't think there is some place that we're going to put these folks to work. So again we can shut that down very quickly and burn off any excess. So that is probably the biggest teeter-totter in our go-forward plan in terms of expenses.

But again, it's sort of like purchasing engines. I view them more as an investment than an expense and I think particularly on the pilot side, given the current environment, I think the strategy that we've chosen to extend out the number of pilots we are hiring, because, we totally anticipated having 15 people in a class, 15 to 20 a month and we -- like I said, I think in January, we had 62, right, because again we think there are opportunities out there and we want to be prepared to be able to look our partners right in the eye and say, we've got the pilots, no problem.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

Okay. Yes, that makes sense. And maybe just going back to Savi's question here. The market is valuing the stock as if there is pretty significant risk that you can retain the United work, let alone kind of grow the business. You sound confident that you can keep the United contract and grow the fleet. So, should that be the expectation that 12 months from now or 18 months from now, the number of aircraft you have under contract is greater than it is now?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Well, I would say this, when I say that there are opportunities, those opportunities exist throughout the industry, not just in particular to any one carrier. I think that the opportunity to extend the existing 700s, again, we remain confident that we can achieve that. And also, I think it's fair to say that we wouldn't be making a bet like we have with pilots. We didn't think there are other opportunities with our partners or with potentially new partners that we want to be prepared for. So our view is, we feel little bit more positive going forward that those opportunities exist and if we make a $5 million or $10 million bet, for the potential of a long-term contract or partnership with another carrier, we think that that's a sound bet given our current financial situation and where we stand within the industry.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

Okay. And just lastly, Jonathan, with the lockup expiring, can you just, I guess, provide us with your philosophy on how much stock you and some of the other named executives should own going forward?

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Yes, I mean, look, my view is that -- I mean, just my personal view is, I would -- you can lock me up for sometime at this point because I don't have any interest in selling at $9 a share and I actually have spoken to a number of the large shareholders, who probably share that view that the Company's valuation is below what they anticipated or believe that it should be. That's not to say that if you have a basis of $100, you might want to sell or sell some and some of the hedge funds that had purchased the stock, they have a limited lifespan. So we're just cognizant of that and just preparing ourselves that if we did see some opportunities long-term to make some strategic buyback, for example, that we would obviously consider that and look to do that potentially.

As someone pointed out, at this current earnings level we're trading, I read in -- I didn't even know, but I mean I read in a report this morning that we're trading little over 4 times earnings. I mean, obviously that's by industry standards pretty low and we just have to look to be cognizant of that. That being said, if we're right on the other piece that there may be some growth opportunities that require us to go out and acquire aircraft, I think that that may be a better investment for us to buy new aircraft that go into a long-term contract that can be very profitable for us going forward.

Joseph DeNardi -- Stifel Nicolaus -- Analyst

It's very helpful. Thank you for the time.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Sure.

Operator

(Operator Instructions) At this time, we don't have any questions over the phone. One moment please for anymore questions.

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Okay. If there aren't any more questions, again, I'd like to thank everyone. I know that the investment community is little anxious as are we. We remain confident that our business plan is the right one. We think that the structure that we've put in place at Mesa is a good one. We have some really I think excellent strategic options available to a fleet that is now or close to being owned. You look at our workforce, we have a very flexible workforce. Almost half of our employees have less than two years' seniority, which will give us, we believe, a significant cost advantage for quite some time going forward.

Our labor contracts are -- we signed a year ago our relationship with labor, I think, has been the key to our success frankly. We've never had a moment of dissent with our unionized workforce. In fact it's quite the opposite, we always look for them to help us and be supportive as we are of them. And we just feel that going forward, all those things come together to make for the ability for us to take advantage of opportunities as they may arise. So with that, again, I'd like to thank all of you for taking the time. We continue to work very hard. Mike and I and Brian are all significant shareholders too and we'd like to see better performance as we go forward as well. So thank you all. We look forward to talking to you on our next call or at one of the conferences we discussed. Have a great day.

Operator

That concludes today's conference. Thank you all for joining. You may now disconnect.

Duration: 52 minutes

Call participants:

Jonathan G. Ornstein -- Chairman and Chief Executive Officer

Brian S. Gillman -- Executive Vice President, General Counsel and Secretary

Michael J. Lotz -- President and Chief Financial Officer

Savanthi Syth -- Raymond James -- Analyst

Andrew Didora -- Bank of America Merrill Lynch -- Analyst

Joseph DeNardi -- Stifel Nicolaus -- Analyst

Helane Becker -- Cowen & Company -- Analyst

Kevin Starke -- Owl Creek Asset Management LP -- Analyst

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