MAIR Files Suit against Mesaba and Its Creditors

In a corporate feud with millions at stake, MAIR Holdings Inc. on Thursday sued its bankrupt subsidiary, Mesaba Airlines, and Mesaba's creditors in an attempt to block them from gaining access to the parent company's substantial cash.

Mesaba, which provides regional flight services for Northwest Airlines, paid MAIR Holdings $111 million in dividends between 2002 and 2004. Mesaba also paid Minneapolis-based MAIR $11 million in management services fees for expertise from MAIR executives between 2003 and 2005.

Minnesota Twins owner Carl Pohlad owns about 10 percent of MAIR shares and serves as a board member; Northwest owns about 27.5 percent of MAIR.

Last week, U.S. Bankruptcy Judge Gregory Kishel authorized the Mesaba creditors' committee to pursue financial claims against MAIR. The creditors include key businesses, such as BAE Systems Regional Aircraft, and the Mesaba pilots and flight attendants unions.

"The dividends and fees Mesaba paid to MAIR are legitimate, appropriate and legal," Paul Foley, MAIR chief executive, said Thursday in a prepared statement. "The public speculation that these dividends and payments were improper is unsupported by the facts, by the law and is damaging to MAIR."

Foley added, "We are asking the court to rule on this matter and put it to rest once and for all."

Specifically, MAIR has asked Kishel to grant the corporation "a declaratory judgment confirming that the transactions between MAIR and Mesaba were appropriate."

Mesaba spokeswoman Elizabeth Costello said, "We are reviewing the complaint and have no comment at this time."

MAIR Holdings has been a controversial element throughout the one-year-old Mesaba bankruptcy case. Mesaba is MAIR's primary source of revenue. With labor and vendors expected to take financial hits because of the airline's bankruptcy, they are looking to MAIR's assets as a way to soften the blow.

Tom Wychor, chairman of the Mesaba pilots union, said Thursday: "The transfer of millions and millions of dollars from Mesaba to MAIR has been a huge concern for every employee on this property."

Wychor said: "We were very disappointed that Judge Kishel denied our ability to raise this issue early in the [bankruptcy] process" when Mesaba initially sought to void its labor contracts. "Perhaps a full, fact-laden discussion of these transfers may have led to more fruitful negotiations in the last several months."

The pilots and Mesaba held a negotiating session on Thursday. Mesaba still lacks concessionary deals with its pilots, flight attendants and mechanics.

On Tuesday, Mesaba is scheduled to ask Kishel for the authority to void its existing labor contracts. If Kishel approves Mesaba's motion and deals are not reached by Oct. 15, the carrier is expected to impose lower pay rates and new work rules.

MAIR is not in bankruptcy and is not providing debt financing to Mesaba. MAIR's only other subsidiary is tiny Big Sky Airlines, which has consistently lost money.

In September, U.S. District Judge Michael Davis ruled that Mesaba had failed to "fairly and equitably spread the burden of reorganization among all relevant parties, particularly MAIR."

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