Delta vs. Mesa – legal battle continues

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Delta Air Lines Inc. has filed a new lawsuit in its continued attempt to break a contract with Delta Connection partner Mesa Air Group Inc.

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Delta Air Lines Inc. has filed a new lawsuit in its continued attempt to break a contract with Delta Connection partner Mesa Air Group Inc.

Mesa, parent of Connection carrier Freedom Airlines, said in a Friday regulatory filing that Delta had filed suit in federal court seeking declaratory judgment to terminate the contract based on “material breach by Freedom,” according to U.S. Securities and Exchange Commission filing.

During the past 18 months, Delta has had a series of disputes with other Delta Connection partners, some of which have been resolved. Delta is the largest airline flying out of the Dayton International Airport.

The suit, filed Aug. 19, is the latest salvo in a contractual battle between Delta and Mesa.

“After months of working in good faith to try to resolve a contractual billing dispute with Mesa, we unfortunately have been left with no choice but to ask a court to resolve Mesa’s refusal to honor its contract pricing guarantees,” Delta spokeswoman Kristin Baur said in a e-mail. ” We expect Mesa and Freedom to keep their promises to Delta and our customers, and so far, they have refused to do so.”

In April 2008, after Delta tried to buy Mesa out of its contract, and Mesa declined, Delta sent a letter to Mesa terminating the contract saying Mesa’s percentage of flight cancellations exceeded contractual limits, counting so-called coordinated cancellations, according to court documents. Mesa won a preliminary injunction to stop Delta from cutting ties, and the U.S. Court of Appeals for the 11th Circuit affirmed a preliminary injunction last month.

The case is expected to go to trial later this year.

Mesa has said it will be forced into bankruptcy if Delta is allowed to revoke the contract.

Airline analysts have said Delta, especially since its merger last year with Northwest Airlines, has agreements with contract carriers to fly too many regional jets. Regional jets are typically cost effective at oil prices below $50 per barrel.

In the run up of fuel prices in early- to mid- 2008, Delta started exploring its options to reduce its number of contract carriers. Delta tried to terminate contracts with Mesa Air Group and Pinnacle Airlines Inc last year. Delta and ExpressJet Holdings Inc. mutually ended their contract in 2008.

“The alleged material breach relates to Delta’s efforts to impose certain cost reductions on Freedom,” Phoenix, Ariz.-based Mesa said in its Friday SEC filing. “Freedom believes that Delta’s claims are wholly without merit and are a direct effort by Delta to circumvent the injunction prohibiting Delta from terminating Freedom’s Connection Agreement, which was recently upheld by the 11th Circuit Court of Appeals.”

An after-hours message left for Mesa’s Atlanta-based attorneys was not immediately returned.

In an interview earlier this month, Lee Garrett, an attorney with Jones Day representing Mesa, said Delta’s actions toward is contract carriers reflected a need to cut cost.

“They’re trying to cut capacity [and] they’re trying to cut costs and if you look at their recent filing they don’t see a good second half of 2009,” Garrett said. “It’s simply a matter of dollar bills.”

Like its mainline service, Delta has also slashed capacity and jobs at its regional subsidiaries, Comair and Mesaba.

Delta plans to cut capacity internationally by 15 percent, and trim domestic capacity by 6 percent to 8 percent beginning this fall, with Delta Connection partners part of the plan. It has also announced it will likely be forced to lay off salaried workers after thousands of workers — including management, pilots and flight attendants — have voluntarily left the combined Delta and Northwest since the merger in October 2008.

Approximately 23 percent of Delta’s 2008 passenger revenue was from regional flights. But revenues dropped 8 percent in 2008 because of high fuel prices and slacking demand.

Delta owns or leases 287 regional aircraft, not including hundreds of regional planes flown by regional partners, according to its annual 10-K filing with the Securities and Exchange Commission.

In a separate case, Delta is fighting a lawsuit by SkyWest Inc. which owns former Delta subsidiary Atlantic Southeast, over reimbursements for certain flight cancellations.

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Editor in chief is Linda Hohnholz.