Mesaba forced to file Chapter 11 following Northwest service payment, aircraft reductions

By Caroline Salls

Pittsburgh, Oct. 13 - Mesaba Aviation, Inc., a subsidiary company of Mair Holdings, Inc., filed for Chapter 11 bankruptcy protection Thursday in the U.S. Bankruptcy Court for the District of Minnesota in the wake of reduced service agreement payments and aircraft cuts from Northwest Airlines Corp., according to a company news release.

"This was a difficult but necessary step; Northwest's actions since filing bankruptcy along with the continuing distress affecting the entire industry requires us to change and to do so quickly," president and chief operating officer John Spanjers said in the release.

"The changes imposed on us by Northwest since its filing in September have left us with insufficient revenues to support our cost structure."

Prior to its own bankruptcy filing, Northwest failed to make an $18.5 million semi-monthly payment due to Mesaba under the airline services agreement for services rendered in the last half of August.

On the following payment due dates of Sept. 26 and Oct. 11, Northwest made partial payments of $1.6 million and $15.7 million, respectively. As a result, Mesaba has a $30 million net unsecured claim in the Northwest Chapter 11 case.

In addition, Northwest has advised Mesaba that it intends to reduce the number of Avro and Saab aircraft in Mesaba's fleet and that Mesaba should count on receiving only two of the 15 new CRJ aircraft committed under the agreement.

Northwest also has notified Mesaba of its intent to terminate the sub-leases on all 35 of the Avros.

"The combination of the loss of $30 million of revenue and the reduction in our fleet size by at least 28% has left us with no choice but to take this difficult step," Spanjers said in the release.

"We view bankruptcy as a last resort, but a necessary one because no other alternatives would allow us to change as rapidly as we need to."

According to the court's web site, Mesaba has $108.5 million in assets and $87 million in debt.

Mair Holdings supports the airline's decision to restructure through the Chapter 11 process, according to the release, and has offered to extend debtor-in-possession financing to Mesaba.

According to an 8-K filing with the Securities and Exchange Commission, Mair has provided a commitment letter and term sheet for $35 million of secured debtor-in-possession financing, of which $15 million will be available subject customary funding conditions.

The other $20 million will be available upon the satisfaction of additional conditions, including Mesaba's delivery of an acceptable five-year business plan by Jan. 31.

According to the release, the company said it will continue its regular operations to serve customers, honor tickets and operate its schedule as a Northwest Airlink partner.

Mesaba is an Eagan, Minn.-based Northwest Airlink affiliate. Its Chapter 11 case number is 05-39258.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.