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Northwest Airlines Plans to End Jet Lease

Posted on: Friday, 23 September 2005, 21:00 CDT

Sep. 24--Bankrupt Northwest Airlines intends to terminate the lease of 35 Avro jets to its regional carrier Mesaba Airlines by Dec. 20, apparently slashing the flying Mesaba the does for the larger airline.

Mesaba said Friday that it will contest the planned move -- which affects about one-third of the aircraft it operates -- arguing it's a violation of its contract with Northwest.

Eagan-based Mesaba, which employs about 3,750 workers, said the termination of the leases and the removal of the Avro jets from its fleet would result in a "substantial decrease" in its revenue and would have a "material" effect on its financial results.

"Obviously, these developments are very worrisome," Mesaba President John Spanjers told employees in a letter. "At this point, we need to understand that every assumption that underpins our business is subject to review."

In 2004, Mesaba flew about 5.4 million passengers for Northwest under the flag Northwest Airlink, for the most part, shuttling them between smaller cities and Northwest hub airports. About half of the passengers flew on the Avros.

Northwest, also based in Eagan, had no comment about the lease terminations. But in a filing in its Chapter 11 bankruptcy, Northwest had listed the 69-seat, four-engine Avros among some 100 planes it intended to return to leasing companies "All schedules are under review," said Northwest spokesman Kurt Ebenhoch.

During fiscal 2005, flying for Northwest accounted for 93 percent of Mesaba parent MAIR Holding Inc.'s $456 million in revenue.

Industry analyst Doug Abbey said he's not surprised that Northwest would dump the Avros because more-efficient options exist.

He expects Northwest will order two-engine 70-seat jets to replace them. "It will be a battle to see who flies them," said Abbey, a partner with the Velocity Group.

He expects they'll go to whichever group of pilots is willing to fly them for the least amount of money. That could mean pilots at Northwest or Mesaba or Pinnacle Airlines, Northwest's other regional carrier based in Memphis, Tenn.

Northwest, said Abbey, will squeeze its regional carriers hard to drive down costs.

"They have extracted a pound of flesh already, and they will extract another," he said.

On Sept. 1, Mesaba and Northwest formally announced an agreement for Mesaba to operate 15 Bombardier CRJ-200 regional jets. All 15 planes were expected to be in service by March 2006. In addition, Northwest had indicated that Mesaba could be in line to receive 20 more CRJs. Those planes typically have 44 or 50 seats.

With Northwest's Sept. 14 bankruptcy filing, however, it is unclear how Northwest's allocation of the CRJs to Mesaba may change. The airline was not saying Friday.

Spanjers told employees that Mesaba wants to "remain a vital piece of Northwest's future, but we also need to plan to ensure our continued role within the industry."

Meanwhile, Mesaba said it has notified Northwest that it reserves the right to terminate ground handling services provided to Northwest and to "exercise any other remedies available to us."

On Sept. 12, Northwest failed to make an $18 million payment to Mesaba for services provided.

Spanjers also disclosed Friday that Northwest CEO Doug Steenland had resigned from the board of MAIR Holdings.

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Copyright (c) 2005, Pioneer Press, St. Paul, Minn.

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NWACQ, MAIR, PNCL,

Source: Saint Paul Pioneer Press (St. Paul, Minn.)

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