Airline parent MAIR decides to call it quits

Minneapolis-based MAIR Holdings Inc., which sold Mesaba Airlines earlier this year to Northwest Airlines, intends to go out of business in 2008 after distributing its remaining cash to shareholders.

MAIR has owned its remaining operating business, Montana-based Big Sky Airlines, for five years but has failed to turn the tiny carrier into a profitable enterprise.

On Thursday, MAIR CEO Paul Foley told investors that Big Sky's recently inaugurated East Coast flying for Delta Air Lines would be halted in early January. MAIR also is looking to transfer the rest of Big Sky's flying to another carrier.

"Despite our efforts, we no longer see a route to profitability in Big Sky's Eastern operations," Foley said.

MAIR's board, which is chaired by Robert Pohlad, provided secured debt to Big Sky to buy eight 19-seat airplanes to serve the new routes as a Delta Connection carrier.

Those new operations have been hurt by "unusually bad weather" that caused flight cancellations and by "continually escalating fuel prices," Foley said. He estimated that Big Sky lost $1.3 million during November alone.

"MAIR's board is no longer willing to provide additional capital to Big Sky to develop the Eastern operation," Foley said. "MAIR has instructed Big Sky to sell the [new] aircraft," he added.

Big Sky had taken delivery of seven of the eight new planes, which cost about $2.7 million each. Foley said that the carrier expects to recoup most of its initial investment. The value of the seven planes and spare parts was estimated at $21.9 million.

Big Sky started flying for Delta in April, with most of its operations based out of Boston's Logan Airport. Now that its Delta East Coast work is vanishing, it is left serving 15 cities in five Western states.

During MAIR's ownership of Big Sky, Foley frequently told Wall Street analysts that Big Sky was envisioned as a growth vehicle. "We never purchased Big Sky to fly 19-seat Metros out of Billings, Montana," Foley told analysts in May 2004.

But an agreement that MAIR signed with the Air Line Pilots Association (ALPA) in early 2004 prohibited Big Sky from operating planes larger than 19 seats. The ALPA leaders wanted to ensure that Mesaba pilots would be the beneficiaries of major growth at MAIR.

Parent MAIR collected more than $100 million from Mesaba's operations before MAIR's board decided that Mesaba should file for bankruptcy in October 2005. During the Chapter 11 case, Mesaba's three largest unions -- pilots, flight attendants and mechanics -- ultimately approved contracts that cut labor costs by 15.8 percent.

Foley said Thursday that MAIR has $38.5 million in unrestricted cash. According to a regulatory filing, MAIR had total assets of $95 million at the end of September.

It is unclear how much money MAIR's shareholders will receive. MAIR also is awaiting a final payment from the Mesaba bankruptcy case because some claims are still in dispute.

"We're going to go through this transition process, and as quickly as we can get the cash back to our shareholders," Foley said during a conference call. In response, an Oppenheimer Funds analyst asked: "And that would be the end of MAIR?"

"Yes," Foley replied.

Mark Nagel, chairman of the Mesaba pilots' union, indicated Thursday that MAIR could end up in court with the pilots before it sends any checks out to shareholders.

"We will not stand by and let MAIR distribute cash to shareholders without returning money to our pilots." Nagel said.

Foley, who is overseeing the closeout of MAIR, received compensation of $1.1 million for the fiscal year that ended in March. The board gave him a $550,000 bonus for his performance during the bankruptcy.

Liz Fedor • 612-673-7709