Recovering from the bankruptcy of subsidiary Mesaba, MAIR Holdings (MAIR) has three significant goals for the carrier for the remainder of its Fiscal 2007, according to President and CEO Paul Foley, who spoke to investors last week. First and foremost is to reduce both labor and non-labor costs to reflect a downsized fleet of 49 Saab 340s.

On July 14, Judge Gregory Kishel of the U.S. Bankruptcy Court for Minnesota granted the airline's motion for authority to reject its contract with flight attendants, pilots and mechanics. (RAN, July 24, p.7) Unions are fighting the proposed 19.4 percent decrease in wages and benefits.

Mesaba needs to ring an annual savings of $17 million out of its labor costs, including management, in addition to reductions in expenses in other areas. Along with fellow Northwest Airlink Pinnacle (PNCL), Mesaba also awaits Northwest's (NWACQ) strategy for regional airline operations. This flying would be accomplished either with new aircraft, current aircraft such as the single, 50-seat regional jet flown by MAIR for its major partner, or the 124 RJs flown by Pinnacle. Once that is done, negotiations with lessors must be completed before the company can turn its attention to hammering out provisions with the two Airlink partners.

In response to a question, Foley indicated that he was not seeking the sale of the company's Big Sky subsidiary, but rather had acquired it as part of a strategy to diversify operations beyond Northwest and as a growth vehicle for other opportunities. Foley said he sees $2 million to $3 million in additional bids for Essential Air Service markets, as well as bidding on other opportunities to fly Big Sky's current fleet of Beech 1900s or new aircraft. MAIR has bid on the RFPs for fee-for-departure service, although it has not had conversations with those carriers that have already awarded contracts as to why it was not chosen. Besides whatever may ultimately result from Northwest, there are three other RFPs outstanding: turboprop flying for Continental (CAL) and Delta (DALQ), and a Midwest Air Group (MEH) RJ contract. (RAN, August 7, p.7) Foley reiterated his intention to explore diversification opportunities within and outside the airline industry. (RAN, July 10, p.5) He would only say that these opportunities are in the service and transport industries where the airline has skills and experience, and indicated that they could reach fruition before resolution of the Mesaba bankruptcy.

The company closed its fiscal year with $95 million cash and investments on hand with insignificant long term debt. The bankruptcy court recently approved a $24 million financing facility as well.

MAIR lost $2.5 million in its first 2007 quarter, a $3.7 million swing from the $1.2 million net income posted in the year-ago quarter. It attributed the loss to additional expenses incurred in connection with Mesaba's bankruptcy and a net loss of $700,000 at Big Sky. Foley noted that while Big Sky's financial results improved year-over-year, increased fuel expenses forced the loss.

MAIR's operating revenues for the first quarter were $6 million, all of which were related to Big Sky, since MAIR de-consolidated Mesaba's financial results when the subsidiary filed for bankruptcy last October.

MAIR incurred a 33 percent increase in revenues on operating expense of $9.8 million. Enplanements for Big Sky rose 12.7 percent to 29,569 while ASMS increased 29.4 percent to 22.1 million. RPMs increased 11.8 percent to 8.3 million but load factor dropped six points to 37.8 million. Departures increased 18.5 percent to 5,965 while RASM increased 2.6 percent to 27.2 cents and CASM rose 4.2 percent to 30 cents, despite a 50 percent increase in year-over-year fuel expense.

Mesaba reported an operating loss of $1.6 million on total revenues of $83.4 million for the first quarter compared to an operating loss of $130,000 on $110 million in revenues in the year-ago period, due to the elimination of 19 Avros and 12 Saabs from its fleet. Its unit revenue rose 14.5 percent to 16.5 cents per available seat miles (ASM), compared to 14 cents per ASM in the year-ago quarter. The increased unit revenue was attributed to a new mix of flying as Northwest paid a higher rate for Saabs than it did for the Avros, making the reduction in Avro flying more significant than that for the Saabs. Unit cost for the carrier rose 16.3 percent to 16.8 cents per ASM, associated with distributing the fleet costs over 33 percent fewer ASMs.

During the quarter, Mesaba's enplanements were down 24.2 percent to 1,137,409. ASMs dropped 33.9 percent to 506.1 million, while RPMs declined 28.9 percent to 365.9 million. Load factor was up 5.1 points to 72.3 points. Departures declined 24.7 percent to 39,940. RASM increased 14.5 percent to 16.5 cents, while CASM declined 16.3 percent to 16.8 cents.