Mesaba follows partner into bankruptcy court

 - October 18, 2006, 11:02 AM

Mesaba Airlines became the latest casualty of Northwest Airlines’ financial meltdown last month, when it followed its sole mainline code-share partner into Chapter 11 bankruptcy. The move followed weeks of speculation about the effects of Northwest’s failure to pay its Airlink partners millions of dollars in flying fees and subsequent plans to remove as much as half of the seating capacity from Mesaba’s fleet.

The apparent knockout blow came a week before Mesaba’s October 13 filing, when Northwest said it would halt deliveries of 13 Bombardier CRJs scheduled for delivery to Mesaba into next year and ground 10 of the Minneapolis-based regional’s Saab 340 turboprops on January 4. Those announcements followed Northwest’s 90-day notice to Mesaba, effective December 20, that it intended to terminate the leases on all 35 of the regional’s Avro RJs, nine of which stopped flying on October 31.

“We need to restructure this organization quickly to match the revenues that we will have as a result of the reduction in flying,” said Mesaba president and COO John Spanjers. “We are looking at every aspect of our organization. We are looking at every aspect of our fixed costs and our overhead costs, our suppliers, our non-labor and our labor costs, and we will take the necessary steps.”

Mesaba hopes Northwest can save it considerably more pain by renegotiating the leases on the remaining 26 Avros. As things stand today Mesaba has already lost 25 percent of its seating capacity. If all the Avros go, Mesaba’s capacity will fall to about half of its present level. “Clearly we’ll be looking for more information from Northwest and adjust accordingly,” said Spanjers.

As for the 13 CRJs now “in limbo” as he put it, Spanjers said Northwest Airlines has not communicated in detail its intentions. However, the Mesaba president insisted the airline would proceed with plans to fly the two Bombardier regional jets it has already taken.

“We spent $7 million in start-up costs and provisioning for the CRJ fleet,” he said. “We value the certificate, we value the work we’ve done to bring those airplanes on line, and we intend to fly them.”

Mesaba has already laid off 70 employees as a result of the fleet reductions, and Spanjers estimated the airline would need to furlough another 150 by January 4–the day the 10 Saab 340s leave the fleet. Also, on November 1 it will close its crew domicile and maintenance base in Cincinnati, where the nine grounded Avros went for overnight upkeep.

Meanwhile, Northwest still owes Mesaba some $30 million for service performed before the major airline filed for bankruptcy in mid-September. Fellow Northwest Airlink partner Pinnacle Airlines received $8.7 million of the $35 million due it on September 30.

Although by no means out of harm’s way, Pinnacle so far appears to have escaped the ordeal with the bulk of its Bombardier CRJ fleet intact. On October 31 Northwest removed 15 of the 139 Bombardier jets Pinnacle leases from its parent airline, resulting in a 10- to 11-percent capacity cut and a projected 7-percent reduction in fourth-quarter revenue.

By press time Pinnacle hadn’t announced any forced layoffs, but 70 employees have volunteered for furloughs, and more cuts will result from attrition. So far Northwest hasn’t revealed plans for further fleet cuts at Pinnacle, although it will certainly seek contract concessions.