Mesaba files plan of reorganization, expects to emerge in spring as Northwest subsidiary

By Jennifer Lanning Drey

Portland, Ore., Jan. 22 - Mesaba Aviation, Inc. filed a plan of reorganization that incorporates a stock purchase and reorganization agreement with Northwest Airlines Corp., on Monday with the U.S. Bankruptcy Court for the District of Minnesota.

Under the plan, Mesaba will emerge from bankruptcy as an operating subsidiary of Northwest Airlines, Inc.

The company expects to emerge from bankruptcy in the spring, according to a Mesaba news release.

"Mesaba is now positioned to form a new partnership with Northwest Airlines and meet the on-going challenges of the airline industry," John Spanjers, chief operating officer of Mesaba, said in the release.

"Our efforts will ensure that we emerge from Chapter 11 as a competitive regional carrier with a solid financial foundation and a continued focus on unmatched operational performance."

Mesaba plans to file its related disclosure statement with the court in the coming days, according to the release.

In addition to the stock purchase and reorganization agreement, the plan of reorganization assumes new agreements with Mesaba's labor groups and certain vendors and suppliers.

Mesaba/Northwest agreement

Under the agreement between Mesaba and Northwest, which is included in Mesaba's plan of reorganization:

• Northwest will allow a $145 million claim by Mesaba in Northwest's bankruptcy case;

• Mesaba's current equity will be cancelled and new equity will be issued to Northwest, making Mesaba a subsidiary of Northwest;

• Mesaba will be allowed to monetize its $145 million claim against Northwest through a sale that is expected to occur within the next 30 days;

• Mesaba will release its claims against MAIR Holdings, Inc.; and

• Northwest and Mesaba will execute a mutual release of claims against each other.

Creditor treatment

Also under Mesaba's plan of reorganization:

• Holders of miscellaneous secured claims will receive a full recovery through cash collateral for their claims within 10 days of the allowance date;

• Holders of general unsecured claims will receive distributions, plus interest, of available cash in accordance with a trust agreement under which the company will liquidate its trust assets;

• The equity interest held by MAIR will be cancelled;

• Other equity interest holders will receive cash distributions under the trust agreement;

• Holders of priority claims will receive a full cash recovery, paid through a reserve in the trust within 10 days of the allowance date; and

• Holders of secured tax claims will receive a full recovery in cash or in kind from the trust assets within 10 days of the allowance date.

MAIR/Northwest agreement

In conjunction with Mesaba's plan filing, its parent company, MAIR, announced that it also established a definitive agreement with Northwest.

Under the agreement:

• MAIR will purchase all of Northwest's MAIR stock for $6.25 per share, or approximately $35 million.

Approximately $24 million of the aggregate purchase price, or $4.25 per share, will be paid on the initial closing of the transaction, which is expected by April 15. The remaining $11 million, or $2.00 per share, will be paid on the earlier of the date upon which MAIR receives at least $25 million in equity distributions from Mesaba's bankruptcy estate or nine months from the execution of the agreement;

• Northwest's warrant to purchase 4.1 million shares of MAIR's stock will terminate upon closing of the agreement;

• Northwest's bankruptcy claim of $7.3 million in Mesaba's bankruptcy case will be assigned to MAIR upon the closing of the stock purchase and reorganization agreement;

• Upon the closing of the agreement, Northwest will allow Mesaba to use up to $4.5 million to satisfy certain contracts to be assumed by Mesaba in its bankruptcy proceedings, thereby reducing the claim pool in Mesaba's bankruptcy estate;

• Northwest and MAIR will execute a mutual release of all claims against each other, including MAIR's bankruptcy claim against Northwest; and

• MAIR will provide its consent to allow Mesaba to sign the stock purchase and reorganization agreement.

"We believe that the transition of Mesaba to Northwest is a good outcome for all parties in Mesaba's bankruptcy," Paul Foley, chief executive officer of MAIR said in a MAIR news release.

According to the release, if Mesaba's claims are between $90 million and $100 million and Mesaba is able to monetize its Northwest claim at the current market price of 85% to 95% of the total allowed claim, MAIR estimates it could receive approximately $30 million to $60 million after all distributions are made under Mesaba's plan of reorganization.

Mesaba currently estimates that the final allow amount of bankruptcy claims against its estate will be approximately $90 million, according to the release.

Exclusivity modification withdrawn

Also on Monday, Mesaba's official committee of unsecured creditors withdrew its request to modify the company's exclusive periods, according to a separate filing with the U.S. Bankruptcy Court for the District of Minnesota.

The committee had requested the modification in order to file its own plan of reorganization reflecting the potential acquisition of Mesaba by Northwest. However, the committee announced on Jan. 9 that it had reached an agreement with Mesaba and MAIR.

Mesaba, an Eagan, Minn.-based Northwest Airlines affiliate, filed for bankruptcy on Oct. 13, 2005. Its Chapter 11 case number is 05-39258.

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