Mesaba Says Obstacles Removed for Buyout by Northwest

A roadblock was resolved Tuesday with a secret, side agreement between Northwest and MAIR, Mesaba's parent.

Northwest Airlines Corp. moved closer to buying out its bankrupt feeder carrier Mesaba Aviation by making an agreement with Mesaba's corporate parent, the two companies said.

Northwest, which is expected to file its own bankruptcy reorganization plan next week, has said it plans to acquire the feeder airline in exchange for giving Mesaba a $145 million (euro111.38 million) unsecured claim in Northwest's bankruptcy case. But Mesaba's unsecured creditors had complained that Mesaba's only shareholder, MAIR Holdings Inc., was dragging its feet and endangering the deal.

That roadblock was resolved Tuesday with a side agreement between Northwest and MAIR. Terms of the deal were not disclosed.

The companies, bankruptcy judges and Mesaba's unsecured creditors still need to approve the deal, which came just hours before a court hearing where attorneys for unsecured creditors of Mesaba Aviation Inc. were going to ask permission to propose their own reorganization plan for Mesaba.

The acquisition by Northwest had been moving ahead without MAIR, which is Mesaba's only shareholder. So why deal with MAIR at all?

"You'd rather have a consensual agreement with all the parties involved. Otherwise we'd be going to court with MAIR," Mesaba spokeswoman Elizabeth Costello said.

Mesaba flies 49 propeller-driven Saab 340s and one regional jet. Its fleet of more than 100 aircraft was reduced sharply as its only customer, Northwest, reorganized under bankruptcy protection. Northwest said Tuesday it is "actively considering" Mesaba for flying 36 regional jets with 76 seats each.

MAIR shares dropped a penny to close at $7.31 on the Nasdaq, near the top of its range for the past year. The agreement with Northwest became public just as the market closed.

MAIR released a statement confirming the agreement in principle. Spokesman Jon Austin declined to answer other questions about it.

The deal will leave MAIR with however much of the claim it recovers after payments are made to creditors. Besides Mesaba, MAIR's only other operation is Big Sky Airlines, a small regional carrier based in Billings, Montana.

The value of claims in bankrupt airlines has jumped in recent weeks as fuel prices have dropped and merger talk has swirled about which airlines are in play. Northwest feeder Pinnacle Airlines Inc. announced Tuesday that it sold $335 million (euro257.34 million) of its Northwest claims for $283 million (euro217.39 million) after sales expenses. That works out to about 84 cents on the dollar.

Prices like that are "remarkable for an airline, because historically unsecured creditors have come out of bankruptcy with single-digit cents on the dollar," said Standard & Poor's Corp. airline analyst Philip Baggaley.

MAIR shares dropped a penny to close at $7.31 on the Nasdaq, near the top of its range for the past year. The agreement with Northwest became public just as the market closed.

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