Pilots Trying to Hold MAIR to 2004 Deal

Three years ago, Mesaba Airlines pilots were close to striking. But Mesaba's parent company, MAIR Holdings Inc., and the pilots union averted a walkout by signing an agreement that required MAIR to use Mesaba pilots for major expansions.

That agreement, dubbed the "MAIR letter," now is at the center of a legal battle between the pilots and MAIR, even as Mesaba is being purchased by Northwest Airlines.

MAIR wants to grow its business by attracting new flying contracts for its Big Sky Airlines subsidiary. But the Air Line Pilots Association (ALPA) argues that MAIR must use Mesaba pilots for any flying in airplanes with more than 19 seats.

Even though MAIR no longer will own Mesaba, the pilots union asserts that Mesaba pilots still have a legally binding labor contract that MAIR must honor. The dispute underscores the complexities of collective bargaining in the airline industry.

Tom Wychor, chairman of the Mesaba pilots union, said Monday there are other pilot groups in the United States that fly regional jets for multiple carriers.

In 2004, Wychor said, "We could have taken additional cash in the labor agreement, but we opted for job security." Wychor said ALPA is not blocking growth at MAIR, but simply wants Mesaba pilots to do flying for other carriers that may sign agreements with MAIR Holdings.

John Prater, president of ALPA International, said Monday that his union "will not allow pilot jobs to be stolen" from Mesaba Airlines pilots.

MAIR CEO Paul Foley and a pilots union official signed the "MAIR letter" in January 2004. Mesaba was a wholly owned subsidiary of MAIR, and the Mesaba pilots wanted to block MAIR from diverting new flying opportunities to Big Sky, a small Montana-based carrier that MAIR acquired in late 2002.

In October 2003, MAIR's Foley told Wall Street analysts: "We did not buy Big Sky to fly 19-seat [planes] in federally subsidized markets out of Billings."

He envisioned Big Sky as MAIR's growth vehicle.

But tiny Big Sky has been a money-losing proposition.

The "MAIR letter" has restricted Big Sky to flying 19-seat or smaller airplanes.

Meanwhile, Mesaba employees have developed a strong animosity toward MAIR. They point to the fact that MAIR collected more than $100 million from Mesaba's operations before MAIR's board decided that Mesaba should file for bankruptcy in October 2005. Mesaba employees ended up approving 15.8 percent labor cuts, and MAIR still has a substantial cash reserve.

In the 2005 fiscal year that ended in March 2005, MAIR Holdings reported total revenue of $456 million. That was revenue largely generated by Mesaba before Northwest slashed its flying.

On Feb. 6, MAIR demonstrated just how small its operation has become now that it has "deconsolidated" Mesaba's financial results from MAIR and is relying on Big Sky. For the last three months of 2006, MAIR said it had operating revenue of only $5.9 million.

A few days after Christmas, MAIR notified ALPA officials that it would no longer abide by the "MAIR letter." It also sued the pilots union in a Texas court, where it is seeking a judgment that it has lawfully terminated the agreement.

U.S. Bankruptcy Judge Gregory Kishel, who is presiding over the Mesaba bankruptcy case in Minneapolis, refused to nullify the "MAIR letter" last year.

"MAIR has now run to Texas," Prater said in a statement. "This shameless forum shopping ought to be seen for what it is - an attempt to evade a legal obligation that was freely entered into by MAIR Holdings."

A MAIR spokesman declined Monday to comment about the litigation or the future of MAIR, emphasizing that its arguments are spelled out in court documents and regulatory filings.

In its Texas court filing, MAIR said that the letter Foley signed with former ALPA President Duane Woerth "did not contain a duration clause," so, MAIR argues, the letter can be terminated at any time. MAIR also argues that the labor agreement "illegally sought to restrain MAIR's ability to compete in several ways" by limiting Big Sky's operations. MAIR further argued that it "unwillingly signed the letter" to avoid a strike.

Wychor said that the union "takes this fight extremely seriously" and that ALPA will use its legal resources on the national level to enforce the agreement.

Foley told Wall Street analysts in a conference call Feb. 6 that the carrier was considering growth opportunities now that it was "no longer handicapped" by the MAIR letter with the pilots. But Foley did not mention that the job security agreement is the subject of litigation.

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