CHICAGO, Oct 23 (Reuters) - Atlantic Coast Airlines (NasdaqNM:ACAI - News) on Thursday rejected a buyout offer from Mesa Air Group Inc. (NasdaqNM:MESA - News) and said it will forge ahead with plans for its own independent, low-fare carrier with $1.2 billion in revenue and a hub at Washington's Dulles airport. Mesa, seeing an opportunity to expand its reach and create the largest U.S. regional airline, earlier this month had launched an unsolicited bid for Atlantic Coast by sending a letter to Atlantic Coast Chief Executive Kerry Skeen. Atlantic Coast, a regional carrier based in Dulles, Virginia, said in July that it would start a new low-cost airline, anticipating its primary feeder relationship with UAL Corp.'s (OTC BB:UALAQ.OB - News) United Airlines would end. Its shares plunged on the news and Mesa launched its bid. Skeen said in an interview with Reuters he did not know what Mesa would do next, adding his board of directors firmly believes the low-cost strategy is best. The low-fare airline would be profitable within 12 months of operation, he said, generating $120 million in operating income and operating margins of 10 percent. "Dulles is just a market that's begging for more service and it's begging for low fares," he said. The new airline would begin flying when Atlantic Coast's contract with United ends. It now flies as both United Express and Delta (NYSE:DAL - News) Connection. HIGH-FREQUENCY DULLES SCHEDULE The proposed low-fare airline, which will get a new name, would have 44 gates and 325 flights a day from Dulles airport, making it the largest carrier there instantly. The fleet would include 87 regional jets and 33 narrowbodies yet to be purchased from either Boeing (NYSE:BA - News) or Airbus. Cost per available seat mile on those planes would be around 6 cents, he said, with the regional jet unit costs higher. "Compare us to AirTran, compare us to Frontier, compare us to JetBlue, but compare us on what our narrowbody costs will be...at the 6 cent level," Skeen said. That puts us at the lowest end of the peer group." Skeen declined to comment on how defensible Atlantic Coast's antitakeover provision, or poison pill, may turn out to be. Mesa has said it intends to seek control of the Atlantic Coast board, filing papers with the U.S. Securities and Exchange Commission (News - Websites) to nominate seven directors, and then start an exchange offer for all outstanding Atlantic Coast shares. MESA SAYS SHAREHOLDERS DON'T APPROVE OF PLAN Atlantic Coast shares have climbed more than 30 percent since Mesa offered to by Atlantic Coast in an all-share deal that would value each Atlantic Coast share at $11.30. On Thursday, Atlantic Coast shares traded 55 cents lower at $11.45 on the Nasdaq. "They are reaffirming a plan that shareholders have already shown they disapprove of," a Mesa spokesman said. "We are offering an opportunity to create a better bigger company, combining the best of both entities." Skeen said he did not anticipate that United would pull out of Dulles but instead rebuild over time. "It's not our expectation that United will not have additional flights here...we know Dulles is important to United, we don't expect them to abandon Dulles." The pilots union at Atlantic Coast has agreed to contract revisions establishing pay rates and work rules for narrowbody jets and terms to cut costs for operating the regional jets. (Reporting by Meredith Grossman Dubner and Kathy Fieweger in Chicago)