Mesaba will soon face a 'cash crisis,' Spanjers says

The airline's president said an infusion of outside money is needed - and quickly - for the carrier to restructure.

Liz Fedor, Star Tribune
June 03, 2006

Without an infusion of outside money, Mesaba Airlines will face a "cash crisis" by the end of August, company President John Spanjers said Friday.

That reality is prompting Spanjers to move swiftly to try to secure debtor-in-possession financing and to focus on slashing labor costs.

"The company's future is at stake," Spanjers said in an interview at the airline's Eagan headquarters. "My overall responsibility is to make sure this company survives this bankruptcy."

In December, Mesaba management told its employees the company needed to cut operating expenses by $66.4 million a year, with labor costs accounting for $17.1 million of that. Those targets were set after Mesaba filed for bankruptcy in October. The regional carrier was thrown into financial turmoil after Northwest Airlines filed for Chapter 11 bankruptcy in September, skipped some payments Mesaba was due for operating regional flights and decided to cut the carrier's fleet in half.

Spanjers wanted lower labor rates in place by April 1, but management and negotiators for pilots, flight attendants and mechanics have been unable to reach deals. Consequently, Spanjers said, monthly labor costs have been higher than budgeted.

And, he said, its cash position has been "degraded significantly," but declined to disclose the airline's cash balance.

He said Mesaba hopes to finalize debtor-in-possession financing by the end of June, and that executives have met with multiple lenders. When the regional carrier filed for bankruptcy, its parent, MAIR Holdings Inc., provided a letter saying it was willing to provide financing, but did not renew the offer this spring.

Mesaba management and its labor unions have been at odds for six months concerning potential cutbacks. In particular, the unions have battled airline negotiators about their insistence that they accept six-year contracts that reduce labor costs by 19.4 percent.

Spanjers has said repeatedly that he wants to reach deals at the bargaining table, but that the company can't back off of its labor-cost targets. He stressed that company negotiators are flexible about how to reach the 19.4 percent concessionary target, but said they can't reduce the goal. The company needs to retain an 8 percent profit margin in its business plan to attract investors, he added.

Mesaba already has been "aggressive," he said, in its financial assumptions for restructuring leases and other airline operating costs.

"I don't want to impose" pay rates and work rules, Spanjers said, but added that Mesaba will head down that path if necessary to save the company. This week, Mesaba told its labor unions that it must reach deals by June 12 or the airline will renew its request with the bankruptcy court to nullify its labor contracts.

However, before U.S. Bankruptcy Judge Gregory Kishel would rule on the motion, Spanjers said, the parties would take part in a hearing scheduled to begin June 26 in Minneapolis. That timetable would buy two weeks for negotiating.

Spanjers has been at bargaining talks with the pilots since late April, and mediators also have joined the process, but the "gap is still large" between the two sides, he said.

Tom Wychor, chairman of the Mesaba pilots union, said Friday that "there's a wide gulf" in how the two sides perceive a future contract.

"We understand that there are problems with Mesaba, and we have real money on the table to solve those problems," Wychor said. "We remain committed to stay at the table to find a consensual agreement. That will be the only way this company will survive."

The airline employs 3,539 people, about 1,400 of them in the Twin Cities.

Liz Fedor • 612-673-7709