Northwest Airlines Affiliate May File for Bankruptcy
By Julie Forster, Pioneer Press, St. Paul, Minn.
Oct. 8–Mesaba Aviation, owed millions of dollars by bankrupt Northwest Airlines, said Friday it too may need to file for bankruptcy protection because its schedule is being slashed and it may not get the regional jets it had planned and needs to begin flying in coming months.
Mesaba, which serves smaller markets as Northwest Airlink, has warned that less flying and fewer planes will sharply reduce its revenue and result in losses during the next two quarters.
“All of the assumptions that underpin our business are up for reconsideration in this very difficult time,” Mesaba President and Chief Operating Officer John Spanjers told employees in a letter. Bankruptcy is among the options, he told them, a possibility also revealed in a company filing Friday with the Securities and Exchange Commission.
A bankruptcy filing is a good bet, industry observers said Friday. “I assume that they will do this very quickly,” said Darryl Jenkins, an aviation consultant based in Virginia. “They have very little other choice right now.”
Eagan-based Mesaba is one of two regional airlines that fly passengers from smaller cities to Northwest’s hubs in the Twin Cities, Detroit and Memphis, Tenn. Pinnacle Airlines is the other.
Mesaba relies on Northwest for planes, ticketing and marketing. Flying for Northwest accounted for 93 percent of Mesaba parent MAIR Holding’s $456 million in revenue in its fiscal year 2005, which ended March 31. Mesaba employs about 4,000 people, including 1,500 in Minnesota.
Eagan-based Northwest, which filed for bankruptcy last month, is looking to slash its costs by $2.5 billion. Its cost-cutting plans include renegotiating leases, grounding planes and reducing flying.
Northwest earlier had told Mesaba that it planned to remove from the regional airline’s fleet all 35 of its Avro Regional Jets, considered less flexible and economically viable in today’s changing industry. Nine of the jets were to be gone by the end of this month, the remainder by Dec. 20.
Northwest’s fleet-thinning plans for Mesaba have gotten more aggressive. It recently told Mesaba it also will remove 10 Saab turboprop aircraft as of Jan. 4, Mesaba said in Friday’s regulatory filing.
In an even bigger blow, Northwest said it likely will be unable deliver as scheduled 13 Canadair Regional Jets in coming months.
Those regional jets were considered key to Mesaba’s growth. Smaller than its Avro jets and with the ability to fly nearly twice as far, the Canadairs were to give Mesaba increased flexibility as the industry revamps the way it flies.
In addition, Northwest owes Mesaba $28 million for services provided before Northwest’s bankruptcy filing.
Executives from both Mesaba and Northwest have expressed the desire to continue to remain a part of the other’s business plan. But with prospects of a Mesaba bankruptcy, it remains unclear how viable that is.
Northwest probably has more options than Mesaba because of the large supply of regional aircraft on the market. “In effect, Northwest has options in terms of either replacing or supplanting the flying Mesaba is now doing for the company,” said Doug Abbey, a partner at Velocity Group, an aviation consulting firm in Washington, D.C. “That is the process that is now going to unfold.”
A further complication: Northwest says it may establish a subsidiary that would operate jets of 70 to 100 seats. Analysts say such a subsidiary would likely take some flying away from Mesaba.
Northwest owns about a quarter of the shares in Mesaba parent MAIR, which has a second operating company called Big Sky Transportation Co., based in Billings, Mont.
MAIR’s stock took the disclosure of a possible bankruptcy by Mesaba in stride Friday, closing at $5.32 a share, up 6 cents.
MAIR “is considering the impact of Mesaba’s alternatives,” the SEC filing said.
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