Mesa Air Group, Inc. (MESA) Q4 2020 Earnings Call Transcript

Mesa Air Group, Inc.  (NASDAQ: MESA) Q4 2020 earnings call dated Dec. 09, 2020

Corporate Participants:

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Brad Rich — Executive Vice President and Chief Operating Officer

Michael J. Lotz — President and Chief Financial Officer

Analysts:

Savanthi Syth — Raymond James — Analyst

Bert Subin — Stifel — Analyst

Michael Linenberg — Deutsche Bank — Analyst

Helane Becker — Cowen — Analyst

George Stien — Corre Partners Management — Analyst

Presentation:

Operator

Good afternoon, and thank you for standing by. And welcome to the Fourth Quarter Fiscal Year 2020 Earnings Call. [Operator Instructions] It is now my pleasure to turn the conference over to Jonathan Ornstein, Chairman and Chief Executive Officer. Sir, you may begin.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Thank you very much, operator. Sorry for the delay guys. We’re all working remotely as you can imagine. So, technically, trying to get a role on the same page, but we appreciate your patience. This is Jonathan Ornstein. I’m the Chairman and Chief Executive Officer of Mesa Airlines. On the call with me today is Mike Lotz, our President and Chief Financial Officer; Brian Gillman, our Executive VP and General Counsel; and Brad Rich, our Chief Operating Officer.

I’d like to open up with our forward-looking statements. Before the presentation and the comments begin, Mesa would like to remind you that some of the segments in response 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 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, including — 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 Mesa’s website to find additional disclosure and reconciliations of non-GAAP financial measures that will be used on today’s call.

Okay. I really want to start the call with a big thanks to all of our people in the field who despite the obvious risks, continue exhibiting incredible bravery and dedication in their service to our passengers. That dedication is in the face of the pandemic, I believe is nothing short of outstanding. I’d like to thank each of our pilots, flight attendants, mechanics, operations control personnel and all the other front-line employees. While this may well be an example of the darkest hour before dawn, we remain optimistic that our country and our industry will recover in 2021. Thank you everybody.

Despite the challenges in the industry, Mesa is focused on our core business and has secured some important opportunities going forward. I’d like to walk you through some of our key accomplishments for the year. We started off 2020 expanding our United CPA, which we signed in November 2019 for 20 incremental Embraer 175 aircraft as well, extending our 42 existing Embraer 175s for five years and to lease 20 of our older CRJ-700s to another United Express operator for seven years. 10 of those Embraer 175s are already flying for United with six additional aircraft scheduled for delivery this month, and the remaining four in the first half of calendar year 2021.

In April 2020, we applied for the PSP program and received $95.2 million allowing us to retain all of our employees who would likely have been furloughed otherwise due to the significant reduction in our level of operations. These expenses are normally paid by our partners through the CPA. In our June quarter, we were the only publicly-traded US carrier reported profit and has achieved positive cash flow to date.

In July, we announced a five-year contract with DHL to operate two 737-400 cargo aircraft. I’m very pleased to tell you that both of those aircraft are currently in service today. In October, we announced that although the PSP program had ended, we would not furlough any employees through the end of the calendar year. We accomplished this through a combination of a pilot agreement for reduced hours, a significant number of voluntary crew leaves and a reduction of hours for administrative personnel. Again, I’d like to thank all of our people for supporting each other in the company in this endeavor.

In November, we entered into an agreement with United to prepay us $85 million to be used to pay down debt on existing aircraft, which enabled us to maximize our treasury alone. Also in November, we finalized and closed a $195 million loan under the CARES Act with the US Treasury Department. And lastly, in November, we amended our American capacity purchase agreement to extend 40 CRJ-900 aircraft for five years, truly in my mind a remarkable accomplishment given the environment. We remain focused on our primary business with our existing partners and opportunities to grow our business with them. We are also pursuing a number of new opportunities that we believe could provide the company additional long-term growth, diversification and enhanced earnings.

I’d like to turn it over to Brad Rich to give you an update on our level of operations, as well as on our American, United and DHL operations.

Brad Rich — Executive Vice President and Chief Operating Officer

Okay. Thank you, Jonathan. I will begin with an update of our block hour production. For the September quarter, we generated 57,622 block hours, which is about 50% of the pre-COVID levels. Based on current guidance with our partners, we expect the December quarter to be at about 60% of pre-COVID levels and roughly 70% for the March quarter. Based on high level projections from one of our partners, we believe block hour utilization will continue to increase and reach pre-COVID levels by the end of the calendar year.

I’d now like to provide an update on our American operation relationship. We recently amended our CPA to operate 40 of our CRJ-900 aircraft for a term of five years. Our current fleet, as many of you know, is 64 CRJ-900s and that will reduce to 63 in June of 2021. Of these 63 aircraft, we own 48 and 41 of those are financed under our recently announced US Treasury loans. We also have 15 aircraft leased through 2024. We will be using the majority of these aircraft to support the American operation. However, we are reviewing several new opportunities that would productively utilize some of these aircraft. Given the attractive financing and low-debt balance on a majority of the fleet, we believe these aircraft are valuable assets and will remain productive.

Additionally, American has requested that we pick up additional flying over the first half of calendar year 2021 over and above the new CPA levels. Although we’ve not formalized an agreement, we believe this could result in three to five additional lines of flying. Obviously, this new agreement with American was extremely important to Mesa. Getting it done in this difficult and challenging environment was not easy, and we are excited and pleased to continue our relationship with American that began over 30 years ago.

I would like to thank American Eagle leadership, including Devon May, Mark Moessner and George Stahle for their hard work and support. We did offer rates that we believe are competitive and appropriate considering the reduced aircraft ownership previously discussed. This agreement also demonstrates our ability to provide rates that we believe are industry-leading.

Now moving to an update of our United operation. As Jonathan pointed out, we’ve already added 10 new Embraer 175 LL aircraft that are scheduled and are scheduled to add six more of this month. The last four will be delivered in the first half of calendar year 2021. As we add these aircraft to the United fleet, we are removing our CRJ-700s on a one-for-one basis. These aircraft will be leased to another United operator on a seven-year term. We are retraining most of the current CRJ-700 pilots in Dallas on the Embraer 175, and most of that training expense will be covered by the training credits that are part of the purchase agreement. Within the next six months, we will be operating a single fleet of 80 Embraer 175s with United, which will enhance operational performance and improve cost efficiencies.

In regards to our cargo operations, we have two 737-400 cargo aircraft in service with DHL. Both aircraft are based in Cincinnati where we have a pilot domicile and a maintenance base. So far, we have been pleased with the operation and believe we are well positioned to grow this line of business.

With that, I’d now like to turn it over to Mike Lotz to walk through our financial performance.

Michael J. Lotz — President and Chief Financial Officer

Great. Thanks, Brad. Let me do a quick recap on the earnings. For the fourth quarter fiscal 2020, we reported net income of $11.4 million or $0.32 per share. This compares to net income of $12.2 million for the same quarter last year or $0.35 per diluted share. As noted in our press release, the Q4 2020 results include per GAAP, the deferral of $7.8 million of CPA revenue, all of which was billed and paid by American and United during the quarter and will be recognized over the remaining term of the CPAs. During the quarter, we also recognized $40.8 million as an offset to wages related to the previous announced PSP program. We did report $3.2 million of income tax expense for the quarter. However, we do not pay any cash taxes, as we have over $500 million of valuable NOL carryforward.

For the full year 2020, we reported net income of $27.5 million or $0.78 per diluted share compared to $47.6 million or $1.36 per diluted share last year. As noted in our press release also, 2020 results include again per GAAP, the deferral of $23.8 million of CPA revenue, which was deferred and will be recognized over the remaining term of the CPA. During the quarter, we also recognized $83.8 million as an offset to wages related to the PSP program. Of note, of the total PSP grant of $95.2 million, which initially was $92.5 million and then reallocated up to the $95.2 million, we recognized $83.8 million in fiscal 2020 and expect to recognize the remaining balance in the first quarter of fiscal 2021.

For the year, we reported $9.5 million of income tax expense. And as we noted, we did not pay any cash taxes. Quarter-over-quarter, revenue was down $79.8 million or 42% from $178.7 million to $108 million. And for the year, revenue was down $178 million or 25% from $723.4 million to $545.1 million.

Cash for the quarter increased by $34.5 million to $99.4 million. During the quarter, we had capex expense of $1.5 million. We also paid $34.6 million in scheduled principal payments, and we had deferred principal payments of $14 million in the quarter. In total, we have deferred $28.1 million in principal payments since March.

I’d also like to now walk you through the very important US Treasury loan, which we recently closed on, which I can tell you took a lot of effort by a lot of people within the company. At a high level, our total loan is $195 million. The first tranche funding was $43 million and was collateralized with existing unencumbered assets. Prior to the second tranche, we extinguished $164 million of debt. The unencumbered 44 aircraft using a combination of $83 million of cash on hand and $81 million of prepaid CPA revenue from United. The second tranche funding was $152 million collateralized with the 44 aircraft for a total of $195 million.

Net cash generated was $31 million, which is $195 million plus $164 million in debt that was extinguished. The US Treasury debt, as I said, [Phonetic] LIBOR plus 3.50% is interest-only, while the debt that we extinguished was fully amortizing debt. As a result, scheduled principal payments going forward are significantly lower, if we choose not to repay the Treasury loan, which we have an option to do. To put this into context, prior to the Treasury loan, for example, fiscal year 2021 had $189 million of scheduled principal payments, which will be reduced to $96 million or a reduction of $93 million and for fiscal 2022, scheduled principal payments are reduced from $152 million to $91 million, a reduction of $62 million. So in the next two fiscal years, scheduled principal payments are being reduced by $154 million. Also as part of a loan agreement, we did issue $4.9 million warrants for the US Treasury that was struck at $3.98.

I’d like to touch on a few other items. Included in the $164 million of debt that we extinguished was $21 million of the $28 million of total principal deferrals that we have through the end of the fiscal year. The remaining $7 million of deferrals, plus an additional $12 million, which we are differing between October and July, will all be repaid in August. We also negotiated total prepayment discounts of roughly $3.5 million. At fiscal year-end, we had $22.9 million outstanding under our CIT revolver, which we are considering repaying now that we have closed on our Treasury loan. The $81 million United prepaid revenue received in November is expected to be reduced to zero by approximately February.

Capex for 2021 will primarily be our purchase of 20 engines from GE for roughly $110 million. Currently, 10 of those engines are scheduled for delivery in 2021 and 10 for 2022. We are currently in discussions with various parties on financing and lease options as well as discussions with GE to modify the delivery schedule.

Other cash items related to fiscal 2021, scheduled aircraft lease cash payments will exceed book expense by roughly $9 million. We continue to manage our vendor payments and have moved a significant number of our vendors to net 60, up from net 15 and net 30. For fiscal year 2021, we will be performing heavy maintenance that was previously deferred due to lower aircraft utilization levels in fiscal 2020.

Lastly, as we look at the new American CPA terms for the 40 aircraft and the new E175 [Indecipherable] for the 20 new aircraft, we expect our pre-tax margins to be consistent with the past few years. Obviously in this environment, there are a lot of areas that could impact these numbers both positively or negatively. And due to this uncertainty, we’re not offering any guidance at this time.

I’d like to now turn it back over to Jon.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Thank you, Mike. And we appreciate the financial recap. At this point, operator, I’d be happy to field any questions that come from any of the listeners.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Savi Syth from Raymond James. You may go ahead.

Savanthi Syth — Raymond James — Analyst

Hey, good afternoon, everyone. If I could help us with some of those deferred costs showing up and then some of the deferred revenue happening, could you give us an idea of maybe the progression — I know the timing of everything is not exact, but any color on the progression of kind of the revenue build and the cost build in fiscal year ’21?

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Mike, do you want to do that? Hello.

Michael J. Lotz — President and Chief Financial Officer

Yes, I got it. Thank you. So Savi, this is Mike. So most of our revenue growth is going to be based on our block hour production. We did give guidance for the first two quarters. Third and fourth quarter is a little hard for us to predict. We’ve gotten some indication from our partners that it’s going to be increased. But we are just not in a position right now to give those from block hour projections for Q3 and Q4. But from a revenue build, that will primarily just be driven by our block hours. And on the cost side, our costs are going to be fairly consistent. And we did have this deferral of some of our heavy maintenance on the airplanes that we’re deferring from 2020 and we’re seeing a lot of that in 2021.

Savanthi Syth — Raymond James — Analyst

Do those deferrals show up in the off — should we assume kind of off-peak quarters, Mike, and so they’re kind of heavy on those time periods or — and then, do you have an update on any kind of those pass-through costs or are they part of going to be some of the other agreements?

Michael J. Lotz — President and Chief Financial Officer

No, some of them are pass-through, but most of them are for the Mesa responsibility. And as far as timing, I think it would be more likely in the front half of the year than the tail half.

Savanthi Syth — Raymond James — Analyst

Makes sense. And then just one last clarification, the request from American that you’re still working on for additional block hours line, is that in the guidance or that would be above and beyond what’s in the guidance?

Michael J. Lotz — President and Chief Financial Officer

I believe that’s in the guidance.

Savanthi Syth — Raymond James — Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Bert Stevens [Phonetic] with People [Phonetic]. You may go ahead, sir.

Bert Subin — Stifel — Analyst

Hey, this is a Bert Subin with Stifel. Thanks for the time and good afternoon. Over the last couple of quarters, you’ve highlighted very strong controllable completion factors almost pretty much as close as you can get to a 100%. What gives you confidence you can run this strong in operation when block hours start to come back and maybe you don’t have the same degree of sparing that you have now?

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Well, I’ll take a shot and Brad, I’m happy to have you add into that. First on the American side, we will have significantly more spares than we’ve ever had. So I think we would probably be okay there just really depend on what ultimately happens with those aircraft. We certainly will make sure that we have the adequate spares to operate at the levels that are above and beyond. And I think that having those spare aircraft allows us to do that.

On the United side, we have continued to operate — we have always operated for United above any contractual requirements. We’ve done a really good job. We have a lot of new aircraft there, and we have adequate sparing plus. I think a big part of what goes on with United is we have two big maintenance basis that allow us to see a lot of aircraft, and we don’t see any real changes there. So I think we feel very confident, particularly with the age of the fleet at United. Brad, did you want to add anything to that?

Brad Rich — Executive Vice President and Chief Operating Officer

I think — no, Jonathan, I think the two main things are, look, we’re excited to move to one consistent fleet of Embraer 175s on the United side, which will really enhance operational reliability we believe. And then as Jonathan already said, on the American side, we will be adequately spared.

Bert Subin — Stifel — Analyst

I appreciate that. I guess, I’m just wondering if some of the spares come down, you said there is potentially some productive use for some of those aircraft, if you expect that to have an impact or not really.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

I don’t think we wouldn’t jeopardize anything at American by pulling more aircraft out than we feel comfortable with. As a result of the financing that made available to us under the Treasury loan, these aircraft become financially much less of a burden and having the additional spare aircraft is something we want to do to continue to build — even after 30 years, we continue to build the confidence of our partners. So I just don’t think we’d let it get to that point where we felt that we are not adequately spared.

Bert Subin — Stifel — Analyst

Great, thanks. That’s helpful color. Just one more as a follow-up. Jonathan, last quarter, you said you think there is greater opportunity on the regional side than the cargo side. I assume you still think that’s the case, but just wondering if you had any commentary around that.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Well, I think that my view on that is the regional business is clearly our core business, and we do think that there continues to be some very good opportunities in the regional side. In terms of the cargo business, I mean I think that no one imagined the strength that we’ve seen in the cargo side and the opportunities that exist. The difference there is our partners at American, United and other mainline carriers, we’ll do deals 10, 20 aircraft at a time, whereas on the cargo side, they have a tenancy just to be a lot more incremental. And so, I think for that reason, the cargo business will build, but potentially not at the same rate as we could potentially move the regional business. But that being said, I do think that the cargo business does provide us with some pretty significant opportunity. But it’s just maybe taking a little — it takes a little bit longer to develop. At United, we went from literally 20 airplanes to 80 airplanes in a matter of a few years. I just think it’s going to — to do that kind of growth in the cargo business will take some time.

Bert Subin — Stifel — Analyst

Thanks for the time.

Operator

Thank you. Our next question comes from Mike Linenberg from Deutsche Bank. Sir, you may go ahead.

Michael Linenberg — Deutsche Bank — Analyst

Oh. Hey. Hey, everyone. Hey, Jonathan, just to — on the cargo piece to kind of follow up on that, like when we think about how big that could be in two or three years, are we talking what six, eight, 10 airplanes? Do you get to a dozen airplanes? Just if you can sort of frame the expectations for us. And then I have a second one.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Sure. Well, we think the 737-400 continues to have a long-term attraction to the different cargo operations because of very good niche. We are looking at other aircraft types as well. And I think they’ll probably [Indecipherable] to 737-800s at some point. We’re also looking at smaller aircraft. There seems to be a great need to get more products out to more places faster with the advent of overnight delivery literally to everywhere in the country, which has been exacerbated by the pandemic. And I don’t think it’s going to go away anytime soon. And I think that as a result, we’re going to continue to pursue what we think our number of attractive cargo opportunities. How fast they develop and how quick I think is speculation, but I would be very surprised if we weren’t significantly larger than we are today with only two aircraft and in a year or two. And again, that’s just based on our existing business with — our business with DHL.

So I think that like I said the cargo operators take things a little bit more incrementally, but that being said, I think over time, we continue to build that operation nicely over the next couple of years and I would like to think that we could add — it could be nice if we could add an airplane every other month there somewhere in that kind of range. I think if we were at 10 and 12 airplanes in two years, I think we’d be pretty happy.

Michael Linenberg — Deutsche Bank — Analyst

Okay, great. And then just a question on, Mike, you gave us a lot of numbers on where you were a year — fiscal year-end from a liquidity perspective and now you’ve closed the other part of the loan. You talked about maybe paying down the CIT line of credit. How much — can you just tell us how much capacity you have available on that CIT line and maybe give us a ballpark a calendar year-end liquidity level, like what we should be kind of honing in on? Thanks.

Michael J. Lotz — President and Chief Financial Officer

Yeah. So the CIT that we have out, I think it’s roughly $23 million, $24 million. I think that’s about the amount that we have collateral to support under that facility. I think the actual facility may be for $35 million, but it’s — based on the collateral, I think we’re probably cap it like $25 million, of which we have the most of it drawn down.

Michael Linenberg — Deutsche Bank — Analyst

Okay.

Michael J. Lotz — President and Chief Financial Officer

And based on the Treasury loan and where we see liquidity, we’re evaluating just paying that down keeping it in place, of course, but just paying it down. And year-end liquidity is a little tricky right now, but we’re not sure how much of the United prepayment will be burned off. So I prefer to hold off on kind of predicting cash for the year-end right now.

Michael Linenberg — Deutsche Bank — Analyst

Okay. Very good. Thanks. Thanks, Michael. Thanks, Jonathan.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Sure. Thanks.

Operator

And our next question comes from Helane Becker with Cowen. You may go ahead.

Helane Becker — Cowen — Analyst

Thanks very much, operator. Hi, everybody and thank you very much for the time. So one kind of a net question, your liabilities on the current liability line and the non-current liability line don’t add up on the balance sheet you provided today. Those lines are off by a little bit of money, so you might want to look at that or trying to figure out why they are not adding?

And then, my second question is with respect to the operation, the fact that you guys are running a really good on-time performance and a good operation right now, just that — are you getting more inbounds for people wanting — from other airlines wanting to sign you up since you have the capacity and you’re one of the few airlines that’s profitable?

Jonathan G. Ornstein — Chairman and Chief Executive Officer

First — let me address the first question, Helane, since you and I’ve known each other a long time. It’s not the first time that you’ve pointed out an error and have been correct. So we would certainly take a good look at that and make sure that we have the numbers right. So, thank you.

Helane Becker — Cowen — Analyst

Oh, my god. I’m so sorry, and I feel really bad.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

It’s fine. I mean, I was just commenting today that when you run a big operation of any kind, occasionally something slips through the cracks. So let us take a look at it and make sure that we have it right. On the second question, yeah, I think that we have really established ourselves as one of the leading regional carriers and hopefully, one of the leading cargo carriers. There is certainly opportunity within the regional business as other CPAs have aircraft that are expiring and our cost structure, we feel, is significantly below our major competitors. We think that in all probability the likelihood to be able to catch our cost structure is very low because so much of our cost structure is based on the fact that I think the last time I looked, half of our employees have less than two years’ seniority. So we have a young junior workforce that gives us some benefits there.

So, yeah, and I think that both in the regional side and in the cargo side when there are RFPs out there, I think Mesa will in fact be included going forward. So I do feel that we can win business, both on our costs and also on the level of service that we can provide. Believe me, we know that we’re being tested right now by DHL, and we’re doing everything we can to provide the highest quality business because we believe that there could be some growth coming in that regard, but we know that performance is critical. So, I do think that it’s been helpful to us and obviously, we have to build on this coming out of the pandemic to demonstrate that what we’ve done here is building the base for us to continue to grow the business.

Helane Becker — Cowen — Analyst

Okay. That’s Jonathan. That’s really helpful. Thank you so much. Sorry about that, my addition there, but the other thing I wanted to ask is, one of the things I’m starting to see a lot of in the trade press is biometrics and on the use of that at airports and with the airlines and stuff. And I’m wondering if either of your two partners have talked to you about making sure all of your gates and your boarding processes that are consistent with theirs as they move to that over the next few years.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Well, Brad, do you want to answer that? You were at United. You probably have a better feel for that than I do. Any thoughts?

Brad Rich — Executive Vice President and Chief Operating Officer

I apologize, Helane. Can you restate the question? I’m sorry.

Helane Becker — Cowen — Analyst

Yeah. No worries. It’s just — I’m seeing a lot of stuff on biometrics and the use of biometrics to board people and I guess, we’re going to that because you don’t — we’re going to — it looks to me like we’re going to a touchless environment at airports and so on from a health perspective, even after the pandemic goes away. And I’m just kind of wondering if you’re partners have approached you about making sure all of your airports are consistent with that.

Brad Rich — Executive Vice President and Chief Operating Officer

So, the part of that obviously that we control is I mean, we obviously stay in very close contact and follow the guidance of our partners as you well know. And your question is, have they approached us? Not with anything to the level that you’ve described. Are we making advances and progressions more toward the type of environment you’ve kind of described? Certainly, but how quickly things continue to develop at least to the extent you’ve described? I’m obviously not very well qualified to address other than we just keep in touch with them closely, follow what the guidance they ask and then as it relates to our own operation, our own people, of course, we’re doing everything I think humanly possible to keep people safe in this environment, but those are my only thoughts, Helane.

Helane Becker — Cowen — Analyst

Got you. That’s really helpful. Okay. Thanks, gentlemen. Thanks for now.

Operator

Thank you. [Operator Instructions] Our next question comes from George Stien with Corre Partners. Sir, you may go ahead.

George Stien — Corre Partners Management — Analyst

Hey guys, thanks for taking my question. And congrats on a great quarter. And Mike, this question is I wanted to restate, maybe something that Mike was asking is, maybe if you could just give us a lens into the cash balance as of today are roughly around today where the UAL prepayment stands in gross debt.

Michael J. Lotz — President and Chief Financial Officer

I mean, yeah, look, we’re fairly closer to the end of the calendar year. So we look at year-end cash at probably somewhere around $170 million, of which probably at least half 40 to 50 of that is still United prepaid cash that they have to burn off.

George Stien — Corre Partners Management — Analyst

Got you. Can you remind me of the — so the CARES Act loan where the LTV stands on that one per the covenant or where you guys landed on a LTV basis for the collateral?

Michael J. Lotz — President and Chief Financial Officer

Yeah. So the loan was based on an LTV. It was different for different types of equipment, but it was 50% on an aircraft with the majority of our loan was based on and the test going forward is 66.2% LTV. So there is some amount of cushion there as we test the collateral, I think, twice a year.

George Stien — Corre Partners Management — Analyst

But I guess as kind of round numbers today are getting close to year-end, somewhere around $130 million to $120 million of cash net of the UAL plus I guess conceivably doubly collateralized CARES Act loan of $195 million and I guess of course net that against the market cap of $150 million. Is that kind of — those rough numbers add up?

Michael J. Lotz — President and Chief Financial Officer

Okay. Yeah, that’s correct.

George Stien — Corre Partners Management — Analyst

Okay. That’s it for me. Thanks.

Michael J. Lotz — President and Chief Financial Officer

You bet.

Operator

And the next question comes from Savi Syth from Raymond James.

Savanthi Syth — Raymond James — Analyst

Hey guys, thanks for the follow-up. Could you talk a little bit about with the American contract, what’s the threshold that American needs to come down on their mainline fleet for them to be able to take aircraft out in the first half of the year and also just could you provide an update on the white tail risk, especially if American kind of pulls out aircraft from that contract as they are able to?

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Brad, do you want to do that?

Brad Rich — Executive Vice President and Chief Operating Officer

Well, sure. Look we — I want to be a little careful here becoming a spokesman for American and all of the discussions we’ve had and Savi, I think your question is it’s related to the first half of 2021, is that correct?

Savanthi Syth — Raymond James — Analyst

That’s correct.

Brad Rich — Executive Vice President and Chief Operating Officer

Okay. Yeah. So, look, we — in all the discussions we’ve had with American, the — we think there is a threshold here of about another 40 aircraft of reduction that would then trigger some type of an issue with their scope, but look, I want to be careful of that because it’s Americans to describe, not us, but that’s what we believe. And so — and if you think of 40 additional narrow-body reductions in excess of the current reduction, that’s quite a few airplanes, which we think would be pretty minimal risk for us, especially in environment where as we mentioned, we’re having more discussion about potentially additional flying above and beyond the 40 aircraft. So we — having said all of that, we really — we don’t know exactly what’s going to happen of course, but we think there is relative — relatively small risk in those first six months.

Savanthi Syth — Raymond James — Analyst

Makes sense. And just kind of curious what the white — updated white tail risk and maybe more so because it’s not the CRJ-900s I think have been pledged as well. Just kind of curious what the kind of updated white tail risk is?

Brad Rich — Executive Vice President and Chief Operating Officer

Mike, I’m happy to make some comments, but do you want to take the tail risk part?

Michael J. Lotz — President and Chief Financial Officer

Yeah. So what — you talked about lease exposure?

Savanthi Syth — Raymond James — Analyst

Exactly. Lease and debt payments that might go beyond.

Michael J. Lotz — President and Chief Financial Officer

Yeah, I mean our tail risk has always — it’s really related to the lease aircraft and there is 15 of them, and I think we’ve always said it’s somewhere around $25 million to $30 million, and it’s a tail that occurs not until I think that the first or second calendar quarter of 2024. So that number really hasn’t changed. Of course, the aircraft are fungible, but those 15 aircraft are in the fleet. Makes sense. All right. Thank you.

Operator

And at this time, I’m showing no further questions. Sir, I’ll turn the call back over to you for any closing comments.

Jonathan G. Ornstein — Chairman and Chief Executive Officer

Sure. Thank you very much. Thank you everyone for your support in Mesa over the years and certainly through the pandemic. It’s been obviously challenging, but on the same — at the same time, we’ve worked very hard, keep all of our people moving in the same direction. They’ve been incredibly supportive. I have to tell you, I’m every day amazed that the work effort that people are putting in, whether it’s out online in the maintenance hangers and dispatch or the people who are working from home diligently to keep the company moving forward. We think that the accomplishments this quarter certainly will bode well for the future. I think when we look at our two main partnerships with United and their support, your willingness to loan — to prepay us $80-plus million to help us financially strengthen our balance sheet, I think, is something and particularly given the environment remarkable in itself. And we are really pleased with American and their support, and the work that Brad did putting that deal together that allowed us to continue to operate those 40 aircraft within the American system. Those two things, I think, will hopefully be indicative of what we’re capable of doing going forward with those partners.

Additionally, the US Treasury Department loan has been giving us incredible flexibility with the aircraft. Our cash cost on the aircraft that were financed by the Treasury alone is about $11,000 a month. And I think that it’s important that while we have depreciation expense and obviously, engine expense, that flexibility is what allowed us to put the American deal together.

I’m hopeful on the cargo side that we can continue to see opportunities there. I can tell you that we have had numerous inbound calls regarding our cargo capability over the last few months. And we are looking forward to acting on those calls also going forward. All in all, we feel much better with what’s happening now on the world scene at the beginning of the distribution of the vaccine, which in itself may be a business opportunity for us. And I think that our partners are continuing to show their confidence. In fact, one of our partners has indicated to us at the high level that they expect us to be running at almost 100% utilization by the end of the calendar year. So hopefully, as they say in every — all the indications are in the green, and we’re continuing to make progress going forward. So thank you again, always feel free to give us a call, if you have any additional questions. Thank you, everybody.

Operator

[Operator Closing Remarks]