American Airlines is breaking up with one of its regional carriers — and the pilot shortage is partly to blame

• American Airlines is severing ties with regional carrier Mesa Airlines, citing financial and operational struggles.
• Mesa CEO Jonathan Ornstein said the airline was losing $5 million per month, partially due to increased pilot pay.
• The regional carrier is currently finalizing a contract to fly its CRJ-900 planes for United Airlines.

American Airlines is breaking up with long-time regional carrier Mesa Airlines after a 30-year partnership.

Derek Kerr, American's CFO and president of American Eagle, told employees in a memo on Saturday that its relationship with Mesa will cease on April 3, 2023, citing what he said were Mesa's "various financial and operational difficulties this year." The memo was viewed by Insider.

In a separate memo sent to Mesa employees on Saturday, which was also viewed by Insider, company Chairman and CEO Jonathan Ornstein said Mesa was losing approximately $5 million per month because of its routes with American.

He partially blamed increased pilot pay for the losses. In June, American raised pilot wages at its wholly-owned carriers to attract more talent as the industry battles a shortage. Then, in August, Mesa also increased its pilot salaries, but Ornstein said the money came out of its own pocket — not American's.

Moreover, Ornstein said Mesa was being "penalized" for not meeting the American contract's pre-COVID so-called block hours — meaning it wasn't flying enough.

"Needless to say, this put us between a rock and a hard place," he said in the memo. "At that point, your management knew that something had to change. We just do not believe it is in Mesa's long-term interest to fund ongoing losses at American."

Mesa flies dozens of routes from Dallas/Fort Worth and Phoenix on behalf of American, but AA's Kerr said American's customers will not be affected by the severed contract.

"Envoy and PSA recently announced new crew bases at PHX and DFW, respectively," Kerr said in a memo, referring to two regional carriers American owns itself. "Additionally, SkyWest will continue to fly out of PHX and DFW, and Air Wisconsin is preparing to join the American Eagle family earlier than planned."

American's mainline operation will also backfill some routes, Kerr said. This, coupled with the wholly-owned carriers and other regionals, will ensure the airline "can continue to build and deliver the very best global network for our customers" and provide a "safe, reliable and convenient service," he said.

American and Mesa's partnership dates back to 1992 when the latter started flying codeshare flights for America West Airlines, which was one of the carriers that eventually merged to create the American Airlines known today.

Despite the breakup with AA, Mesa still has other contracts: On Monday, the Phoenix-based carrier announced a pending contract with United Airlines, which, once finalized, would see it begin flying its CRJ-900s as United Express in March 2023. The agreement would "compensate Mesa for the higher costs associated with regional jet flying" and add more service to small markets, Ornstein said.

While Mesa says it's ready to fly its CRJ-900s for United, the Chicago-based carrier's union said an existing agreement could prevent that from happening.

"United is already at their cap on these types of airplanes," the union contended. "Anything beyond that limit must be flown by United pilots" — not pilots from regional carriers like Mesa. Neither United nor Mesa responded to Insider's request for comment on the potential issue raised by the union.

Mesa currently flies Embraer aircraft on behalf of United, and the added CRJ-900s would expand its operation in Denver and Houston.