Mesaba Cleared to Leave Chapter 11

April 11, 2007
The airline now expects to leave Chapter 11 protection during the last week in April. It will be owned by Northwest.

U.S. Bankruptcy Judge Gregory Kishel approved Mesaba Airlines' reorganization plan Monday, clearing the regional carrier to exit bankruptcy during the last week of April.

Kishel, who grew up on Minnesota's Iron Range, said that he watched the toll on employees who lost their jobs when the steel industry declined and that he did not want to see Mesaba "go down on my watch." Mesaba employs about 3,200.

The Eagan-based carrier filed for Chapter 11 in October 2005 - a month after Northwest Airlines entered bankruptcy. Northwest was Mesaba's sole customer, and the big carrier had skipped payments to Mesaba and later cut Mesaba's fleet in half.

Northwest's actions prompted Mesaba to file for bankruptcy, but now it is Northwest that is allowing Mesaba to remain a viable business by buying it and structuring a deal acceptable to Mesaba's creditors and owner.

Thomas Schmidt, Mesaba's vice president of finance, testified Monday that Northwest management contacted Mesaba around Dec. 1 and offered to acquire the company.

He said Northwest gave Mesaba a proposed term sheet for structuring the transaction; that set off three-way negotiations involving Mesaba, Northwest and the creditors committee in the Mesaba bankruptcy case.

MAIR Holdings Inc. of Minneapolis, the sole owner of Mesaba, was notified of the deal on Dec. 20, Schmidt said. Northwest and MAIR then held their own negotiations that led to the ultimate transaction that will transform Mesaba into a subsidiary of Northwest.

Mesaba's claim in the Northwest bankruptcy was sold to Goldman Sachs for $125 million. Attorneys expect that money will be used to satisfy Mesaba's creditors in full. In addition, Tim Robinson, lead attorney for the creditors committee, said that MAIR Holdings expects to be "in the money." That means there is likely to be some money left after creditors are paid, so cash proceeds could go to MAIR as a shareholder.

Mesaba attorney Michael Meyer told Kishel that Northwest has not yet designated board members for Mesaba. He also said that Northwest has not named the officers for Mesaba, but he indicated that Mesaba executives intend to remain with the carrier.

Mesaba now flies 50 planes on Northwest regional routes. Its fleet will grow by three dozen 76-seat jets by the end of 2008.

Last week, Northwest received federal approval to begin flight operations for its new regional subsidiary, Compass Airlines.

Neal Cohen, Northwest's chief financial officer, will serve as chief executive of Compass, which has its headquarters in Virginia. It is unclear whether Cohen also will have a leadership role in the newly restructured Mesaba business.

Before and after Monday's hearing, there was a festive mood in the Minneapolis courtroom because the company had successfully restructured.

In the protracted talks between Mesaba management and labor, Kishel said he had tried to create "a level playing field."

Reflecting on the Mesaba bankruptcy case, Kishel said, "It certainly was the most stressful year of my tenure on the bench."

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