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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission File No. 0-17895
MESABA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1616499
- ---------------------------------- ----------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7501 26th Avenue South
Minneapolis, Minnesota 55450
----------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 726-5151
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of June 20, 1996 was approximately $133,980,000.
As of June 20, 1996, there were 12,760,046 shares of Common Stock of the
registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K.
Document Incorporated Part of Form 10-K
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Proxy Statement for 1996 Annual Meeting of Shareholders Part III
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CAUTIONARY STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Annual Report on Form 10-K under the captions "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward looking
statements involve risks, uncertainties and other factors that could cause the
actual results of the Company to differ materially from historical results or
from any results expressed or implied by such forward-looking statements. Such
factors include the ability of the Company to secure an extended Airlink
Agreement with Northwest Airlines; the price of aviation fuel; changes in
regulations affecting the Company, including DOT and FAA regulations; the
acquisition and phase-in of a new fleet of aircraft; downturns in economic
activity; and seasonal factors.
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PART I
ITEM 1. BUSINESS
Mesaba Holdings, Inc. ("Mesaba Holdings" or the "Company") is the
holding company for Mesaba Aviation, Inc. ("Mesaba"). Mesaba is a regional
airline currently providing scheduled passenger service under the name
"Mesaba Airlines/Northwest Airlink" to 60 cities and metropolitan areas in
Minnesota, Iowa, Nebraska, New York, North Dakota, South Dakota, Indiana,
Wisconsin, Illinois, Michigan, Ohio, Pennsylvania, Kentucky, Tennessee, West
Virginia, Virginia and the Province of Ontario, Canada. All flights
currently operated by Mesaba are designated as Northwest Airlines flights
under the Airlink Agreement with Northwest Airlines, Inc. ("Northwest").
Mesaba's flight schedules are coordinated with those of Northwest to
facilitate interline connections at the Minneapolis/Saint Paul International
Airport and the Detroit Metropolitan Airport.
On March 7, 1996, Mesaba entered into a preliminary agreement with
Saab Aircraft of America, Inc. ("Saab") for the acquisition of 30 new Saab
340BPlus aircraft and 20 used Saab 340A aircraft. These aircraft are expected
to be phased into service over the next 2-1/2 years to replace Mesaba's existing
fleet of 25 deHavilland Dash 8 and 26 Fairchild Metro III aircraft. The
Company also entered into an option agreement for 10 additional new
Saab 340BPlus aircraft and 12 additional used Saab 340A aircraft.
On September 7, 1995, the Company distributed to its shareholders,
other than Northwest, 100% of the outstanding shares of common stock of its
subsidiary, Airways Corporation, to complete the spinoff previously approved by
the Company's shareholders at a special meeting held on August 29, 1995. The
Company also changed its name to Mesaba Holdings, Inc. from AirTran Corporation
on August 29, 1995.
NORTHWEST AIRLINK AGREEMENT
Effective December 1, 1984, Mesaba entered into a cooperative
marketing agreement with Northwest. The agreement was restated as the Airline
Services Agreement, dated as of September 15, 1988 and made effective December
10, 1988, to include service to and from Northwest's hub airport at Detroit,
Michigan. Mesaba and Northwest subsequently amended the Airline Services
Agreement effective April 1, 1992 and January 1, 1996 (as amended, the "Airlink
Agreement") to provide, among other things, a five-year contract extension to
March 31, 1997, exclusive rights to designated service areas and support in
acquiring new aircraft and equipment. Currently, approximately 71% of all of
Mesaba's passengers connect with Northwest flights, either at Minneapolis/Saint
Paul, Minnesota or Detroit, Michigan.
Under the Airlink Agreement, all flights that Mesaba currently
operates are designated as Northwest flights using Northwest's designator
code in all computer reservations systems, including the Official Airline
Guide, with an asterisk and a footnote indicating that Mesaba is the carrier
providing the service. In addition, flight schedules of Mesaba and Northwest
are closely coordinated to facilitate interline connections, and Mesaba's
passenger gate facilities at the Minneapolis/Saint Paul International Airport
and Detroit Metropolitan Airport are integrated with Northwest's facilities
in the main terminal buildings. Its agreement with Northwest also permits
Mesaba to offer its passengers fares between the cities serviced by Mesaba
and all of the destinations served by Northwest as well as participation in
Northwest's frequent flyer program. Mesaba's aircraft are painted the colors
of Northwest Airlines in a distinctive "Northwest Airlink" configuration,
with a Northwest Airlines logo in addition to Mesaba's name.
Mesaba, through the Airlink Agreement and other agreements, receives
ticketing and certain check-in, baggage and freight handling services from
Northwest at certain airports. In addition, Mesaba receives its computerized
reservations services from Northwest. Northwest also performs all marketing
schedules and yield management and pricing services for Mesaba's flights.
The Airlink Agreement extends through March 31, 1997, and continues
indefinitely thereafter, subject to termination by either party on eight months'
notice given any time after July 31, 1996. The
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January 1, 1996 amendment to the Airlink Agreement sets forth a revised
compensation methodology for the period from January 1, 1996 through March 31,
1997. The Airlink Agreement is binding upon the successors and assigns of
Northwest and Mesaba. Mesaba is negotiating with Northwest to extend the
Airlink Agreement to provide for a term of not less than 10 years. See
"Agreement with Northwest Relating to Distribution of Subsidiary" below.
Mesaba believes that its competitive position is enhanced as a result
of its marketing and other agreements with Northwest, particularly through the
ability of Mesaba to offer its passengers coordinated flight schedules to the
destinations served by Northwest. Loss of Mesaba's affiliation with Northwest
or Northwest's failure to materially perform under the Airlink Agreement for any
reason would have a material adverse effect on the Company's operations and
financial position.
AGREEMENT WITH NORTHWEST RELATING TO DISTRIBUTION OF SUBSIDIARY
The Company, Mesaba and Northwest are parties to an Agreement dated
May 18, 1995 (the "Distribution Agreement") relating to the spinoff from the
Company of its Airways Corporation ("Airways") subsidiary, which occurred on
September 7, 1995 (the "Spinoff").
The Distribution Agreement requires Northwest and Mesaba to enter into
good faith negotiations to amend the Airlink Agreement to provide for a term of
not less than 10 years. Mesaba is currently in negotiations with Northwest
pertaining to that amendment.
The Distribution Agreement gives Northwest the right to determine, at
its discretion, all schedules and aircraft routing for Mesaba's flights
departing on and after the Spinoff date. In consideration for allowing
Northwest control over scheduling and routing, Northwest agreed to make
quarterly payments to Mesaba which, together with payments under the Airlink
Agreement, will guarantee that Mesaba's pre-tax income through March 31, 1997
will be not less than the following amounts:
Minimum
Quarter Ending Pre-tax Income
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September 30, 1995 $4,221,000
December 31, 1995 2,219,000
March 31, 1996 1,176,000
June 30, 1996 2,384,000
September 30, 1996 4,221,000
December 31, 1996 2,219,000
March 31, 1997 1,176,000
No guarantee payments have been required through the year ended
March 31, 1996.
Pursuant to the Distribution Agreement, Northwest exercised stock
purchase warrants to purchase 1,499,078 shares of the Company's Common Stock for
an aggregate cash price of $4,477,563. In lieu of receiving its pro rata
distribution of 1,719,134 shares of Airways Common Stock in the Spinoff,
Northwest was issued additional shares of Company Common Stock in a private
placement transaction, which resulted in ownership by Northwest of 29.7% of the
Company's Common Stock issued and outstanding immediately following the Spinoff
date.
Prior to the Spinoff date, the Company and Mesaba made additional
capital contributions to Airways and its subsidiary consisting of cash, tax
sharing payments, and other assets having a total book value of $20.25 million.
In addition, the Company made capital contributions to AirTran Airways totaling
$8.75 million during fiscal 1995. The Distribution Agreement also provided
for the designation by Northwest of three members of the Boards of Directors
of the Company and Mesaba and for the resignation from the Company of certain
of its executive officers and directors. So long as the income guarantee
described above remains in effect, the Chief Executive Officer of Mesaba must
be reasonably acceptable to Northwest.
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The Distribution Agreement also resolved certain cost disputes between
Northwest and Mesaba relating to the sharing of Mesaba's operating cost
increases and payment of holding company costs, resulting in net cash payments
by Northwest to Mesaba of $443,595.
ROUTE SYSTEM
The following tables set forth certain information with respect to
Mesaba's scheduled route system for June 1996.
Number of
Nonstop air roundtrips
mileage from Date from
Minneapolis/ airline Minneapolis/
Saint Paul service Saint Paul
City Airport commenced per week
---- ------- --------- --------
Minneapolis/
Saint Paul, MN --- February 15, 1973 --
Grand Rapids, MN 161 February 15, 1973 34
Brainerd, MN 113 February 1, 1981 49
Pierre, SD 350 December 15, 1983 20
Sioux Falls, SD 197 December 15, 1983 13
Bemidji, MN 199 December 1, 1984 42
Thief River Falls, MN 261 May 15, 1985 21
Aberdeen, SD 257 December 15, 1985 27
Des Moines, IA 232 June 1, 1986 28
Wausau, WI 175 June 15, 1986 47
Lincoln, NE 332 October 1, 1986 26
Grand Forks, ND 284 October 1, 1986 19
Watertown, SD 193 October 1, 1986 34
Fargo, ND 223 January 15, 1987 14
Omaha, NE 282 June 1, 1987 7
Moline, IL 274 June 10, 1988 38
Houghton/Hancock, MI 277 February 22, 1989 35
Marquette, MI 296 February 22, 1989 21
LaCrosse, WI 120 January 31, 1991 47
Bloomington, IL 374 September 15, 1992 20
Champaign, IL 419 January 31, 1993 13
Thunder Bay, Ontario 304 March 16, 1993 20
St. Cloud, MN 67 July 1, 1993 54
Escanaba, MI 304 August 16, 1993 14
Fergus Falls, MN 168 October 30, 1994 19
Ely, MN 213 May 26, 1995 10
Bismarck, ND 386 September 1, 1995 6
Kalamazoo, MI 426 November 1, 1995 26
Rochester, MN 76 April 1, 1996 27
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Nonstop air Date Number of
mileage from airline from
Detroit service Detroit
City Airport commenced per week
---- ------- --------- --------
Detroit, MI --- December 10, 1988 ---
Erie, PA 163 December 10, 1988 27
Akron/Canton, OH 134 December 10, 1988 32
Dayton, OH 166 December 10, 1988 20
Flint, MI 56 January 8, 1989 71
Traverse City, MI 207 January 8, 1989 34
Pellston, MI 242 January 8, 1989 55
Wausau, WI 363 January 8, 1989 20
Houghton/Hancock, MI 425 February 22, 1989 20
Marquette, MI 364 February 22, 1989 28
Toledo, OH 49 April 2, 1989 60
Muskegon, MI 161 October 11, 1989 34
Columbus, OH 155 August 1, 1990 7
Kalamazoo, MI 113 September 6, 1990 26
Cincinnati, OH 229 September 6, 1990 19
Lansing, MI 74 November 14, 1990 26
Youngstown, OH 153 May 1, 1991 19
Fort Wayne, IN 128 June 1, 1991 21
Lexington, KY 296 June 10, 1991 26
Charleston, WV 281 July 8, 1991 34
London, ON 125 September 5, 1991 25
Binghamton, NY 378 July 1, 1992 32
Roanoke, VA 382 August 1, 1992 33
Lafayette, IN 224 September 9, 1992 25
Bloomington, IL 314 September 15, 1992 25
South Bend, IN 157 November 16, 1992 21
Louisville, KY 306 June 1, 1993 7
Escanaba, MI 305 August 16, 1993 33
Champaign, IL 298 September 9, 1993 35
Evansville, IN 364 October 1, 1993 24
Knoxville, TN 443 October 1, 1993 13
State College, PA 300 January 31, 1994 28
Saginaw, MI 98 June 1, 1995 6
Benton Harbor, MI 158 June 20, 1995 19
Harrisburgh, PA 370 December 1, 1994 7
Ottawa, Ontario 439 May 1, 1995 14
Elmira, NY 331 November 15, 1995 26
Allentown, PA 424 December 15, 1995 6
Cleveland, OH 95 December 15, 1995 7
The average segment length of Mesaba's route system is approximately
204 statute miles. Mesaba and Northwest continually review and analyze
Mesaba's route structure to make adjustments in flight schedules and to
consider the addition or deletion of routes. From time to time Mesaba and
Northwest review the feasibility of expanding the frequency of Mesaba's
service to airports currently being served, as well as initiating passenger
service to additional cities generally within Mesaba's service area. Mesaba
works closely with Northwest to coordinate flight schedules and to facilitate
connections between Mesaba and Northwest. See "Business -- Northwest Airlink
Agreement."
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AIRCRAFT
The following table sets forth certain information as to Mesaba's
passenger aircraft fleet as of June 1, 1996:
Approximate Approximate
single average
flight cruising
Type of Number of Seating range speed
aircraft aircraft capacity (Miles) (M.P.H.)
-------- -------- -------- ------- --------
Fairchild Metro III 26 19 650 300
deHavilland Dash 8 25 37 500 285
Saab 340A 2 30 550 290
Mesaba sub-leases its deHavilland Dash 8 aircraft from Northwest
Aircraft under operating leases with terms of up to five years. The
Airlink Agreement allows Mesaba to return aircraft to Northwest upon the
occurrence of certain events. The Dash 8 aircraft are pressurized turboprop
airplanes with galleys, standup headroom, lavatories, radar, ground proximity
warning, traffic collision avoidance and de-icing systems.
Mesaba leases all of its Fairchild Metro III aircraft, either
directly from aircraft leasing companies or through sub-leases with Northwest
Aircraft. The Fairchild Metro III aircraft are fast, fuel-efficient,
pressurized turboprop airplanes with radar, ground proximity warning, traffic
collision avoidance and de-icing systems.
Mesaba intends to replace its existing fleet of Dash 8 and Metro III
aircraft over the course of the next 2-1/2 years. On March 7, 1996, Mesaba
entered into a preliminary agreement with Saab for the acquisition of 30 new
Saab 340BPlus 34-seat aircraft and 20 used Saab 340A 30-seat aircraft. The
preliminary agreement also provides options to acquire an additional 10 new and
12 used Saab 340 aircraft. Mesaba took delivery of the first two Saab
aircraft in May 1996 under operating leases and the remaining aircraft are to
be delivered at a rate of approximately two per month thereafter unless Saab
and Mesaba agree otherwise. Under the terms of the preliminary agreement, at
least 17 new Saab 340BPlus aircraft are to be delivered by December 31,
1997. Mesaba intends to lease the aircraft from leasing companies and from
Northwest Aircraft, Inc. under sub-leases. The Saab 340 aircraft are fast,
fuel efficient, pressurized turboprop airplanes with galleys, standup
headroom, lavatories, radar, ground proximity warning, traffic collision
avoidance and de-icing systems.
All of Mesaba's aircraft comply fully with all Federal Aviation
Regulations ("FARs") issued by the Federal Aviation Administration ("FAA").
Mesaba's existing fleet of Dash 8 and Metro III aircraft have
remaining lease terms of two months to 42 months and aggregate monthly lease
payments of approximately $2,500,000. Mesaba returned its last remaining Fokker
F27 aircraft to the lessor in October 1995.
COMPETITION
The airline industry is highly competitive as a result of the Airline
Deregulation Act of 1978 (the "Deregulation Act"). In general, the Deregulation
Act increased competition by eliminating restrictions on fares and route
selection. The Deregulation Act also contributed to the withdrawal of national
and major carriers from short-haul markets by allowing them to more easily
obtain additional long-haul routes, which can be more efficiently and profitably
served by jet aircraft. Elimination of barriers to entry into new markets,
however, also creates greater potential for competing service by other carriers
operating small, fuel-efficient aircraft on short-haul routes serving small and
medium-sized cities. Mesaba currently competes with other regional airlines in
some of the cities it serves and competition to alternative hubs for connecting
flights exists out of many of the markets Mesaba serves. However, due to the
consolidation of the airline industry and the development of the "hub and spoke"
network, Mesaba has experienced a reduction of competition in its
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specific market segments. No assurance can be given that other carriers,
including major carriers, will not institute competing service on routes served
by Mesaba.
Competitive factors in the airline industry generally include fares,
frequency and dependability of service, convenience of flight schedules, type of
aircraft flown, airports served, relationships with travel agents, and
efficiency and reliability of reservations systems and ticketing services. The
compatibility of flight schedules with those of other airlines and the ability
to offer through fares and convenient inter-airline flight connections are also
important competitive factors. The Company believes that Mesaba is competitive
with respect to each of such factors because of its established reputation,
operating reliability, aircraft fleet which is properly suited for the small and
medium-sized cities served, and especially its relationship with Northwest.
FUEL
The cost of aviation fuel is one of the Company's largest operating
expenses, accounting for 11% of total operating costs for the year ended March
31, 1996, 11% the year ended March 31, 1995, and 12% for the year ended March
31, 1994.
The Company has arrangements with Northwest and seven major fuel
suppliers for substantial portions of its fuel requirements. The Company
believes that such arrangements assure an adequate supply of fuel for current
and anticipated future operations. Both the cost and availability of fuel,
however, are subject to factors beyond the control of the Company. Certain
provisions of the amended Airlink Agreement protect Mesaba from future increases
in aviation fuel prices.
FARES
Mesaba derives its passenger revenues from Northwest in accordance
with an agreed upon formula. Under the Airlink Agreement, Mesaba has the
ability to enter into arrangements with other air carriers for proration of
fares for service to cities not served by Northwest, so long as Mesaba does
not use the "NW" designator code or Dash 8 airplanes with respect to such
service. Fares vary primarily in relation to the length of the flight and
other factors.
REGULATION
Pursuant to the Federal Aviation Act of 1958, as amended (the
"Aviation Act"), the federal Department of Transportation ("DOT"), principally
through the FAA, has certain regulatory authority over the operations of all air
carriers. The jurisdiction of the FAA extends primarily to the safety and
operational provisions of the Aviation Act, while the responsibility of the DOT
involves principally the regulation of certain economic aspects of airline
operations.
FAA REGULATION. Mesaba holds an "Air Carrier Operating Certificate"
from the FAA permitting it to conduct flight operations in compliance with
applicable FAA regulations. Effective July 5, 1984, Mesaba was certified as a
"domestic air carrier," permitting it to operate aircraft with seating capacity
greater than 30 passengers under FAA Regulations, Part 121, the same regulatory
requirements applied to major airlines. The Part 121 regulations include
stricter safety standards than those applying to airlines operating aircraft
with 30 or fewer seats. The FAA regulations to which Mesaba is subject are
extensive and include, among other items, regulation of aircraft maintenance and
operations, equipment, ground facilities, dispatch, communications, training,
weather observation, flight personnel and other matters affecting air safety.
To ensure compliance with its regulations, the FAA requires airlines to obtain
operating, airworthiness and other certificates that are subject to suspension
or revocation for cause. Mesaba holds all certificates necessary for its
operations.
DOT REGULATION. Prior to October, 1992, Mesaba was registered under
Part 298 of the economic regulations of the DOT. On October 26, 1992, the DOT
granted Mesaba a Certificate of Public Convenience and Necessity under Section
401 of the Aviation Act. As a certificated carrier, Mesaba is required to file
certain additional quarterly reports with the DOT, including a report of
aircraft operating expenses and related
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statistics. The Certificate of Public Convenience and Necessity is a
prerequisite for operations with aircraft larger than 60 seats.
OTHER REGULATION. Under the Noise Control Act of 1972 and the
Aviation Safety and Noise Abatement Act of 1979, the FAA has authority to
monitor and regulate aircraft engine noise. Management of the Company believes
that Mesaba's aircraft comply with or are exempt from such regulations and that
Mesaba complies with standards for aircraft exhaust emissions and fuel storage
facilities issued by the Environmental Protection Agency. The Company is also
required to comply with the drug testing program adopted under Part 14 CFR by
the DOT. As a foreign carrier operating in Canada, the Company is subject to
regulation by the Canadian Department of Transport and has been issued Foreign
Air Carrier Operating Certificates by such agency.
INSURANCE
Mesaba carries the types of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability, and workers'
compensation. The Company believes that this insurance is adequate as to
amounts and risks covered. There can be no assurance, however, that the
insurance carried would be sufficient to protect the Company adequately in the
event of a catastrophic accident.
AIRCRAFT MAINTENANCE
Mesaba employs its own aircraft, avionics and engine maintenance staff
that performs substantially all maintenance to its aircraft and engines, except
for major overhauls on the airframes, engines, and other rotable parts on its
Dash 8 Aircraft. Major overhauls on the Dash 8 aircraft are performed at FAA
authorized facilities. Major overhauls of the Metro III aircraft are performed
internally.
AIRPORT AND TERMINAL FACILITIES AND SERVICES
Mesaba's ticket counter and baggage handling space is leased from
local airport authorities or other airlines at all of the airports served. In
24 of the cities it serves, Mesaba receives support service under agreements
with Northwest. The duration of the leases and service agreements vary.
Mesaba pays local airport authorities for the use of landing fields at
rates that are based on the number of flights per day, fixed fees, or on the
number of aircraft landings and aircraft weight.
PROPERTIES
The Company's principal executive offices are located at the
Minneapolis/Saint Paul International Airport. Mesaba leases approximately
293,000 square feet of facilities, ramp, parking and unimproved land at the
Airport under separate ground and facilities leases with the Metropolitan
Airports Commission. The lease expires on December 31, 2008 and provides that
Mesaba will have a right of first refusal on any new lease covering the
premises. Mesaba's primary facility contains approximately 83,000 square feet
of office, shop, and hangar space. Mesaba is obligated to make payments of
approximately $35,000 per month under the lease for the hangar, office and
maintenance facility, in addition to approximately $13,000 per month under the
ground lease for the underlying land and access ramp.
Mesaba leases approximately 394,000 square feet of facilities, ramp,
parking and unimproved land at the Detroit Metropolitan Airport under separate
ground and facilities leases. The facilities lease covers approximately 45,000
square feet of hangar and maintenance space and obligates Mesaba to pay monthly
rentals ranging between approximately $22,000 and $36,000 until August 1, 2002
as part of Special Facilities Bond financing provided by Wayne County, Michigan.
The ground lease has a 20-year term concurrent with the facilities lease which
expires August 1, 2010. Monthly lease payments of approximately $7,000 are
currently required under the ground lease, subject to an annual adjustment on
January 1 each year based upon
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the percentage change in an index published by the Bureau of Labor Statistics of
the U.S. Department of Commerce.
Mesaba owns approximately 38,000 square feet of hangar and office
space located on approximately 102,000 square feet of land and parking areas of
which Mesaba is ground lessee, at the Central Wisconsin Airport in Mosinee,
Wisconsin. Mesaba pays approximately $800 per month under the terms of the
ground lease relating to such facility, which expires on December 31, 2011,
subject to two 10-year renewal options.
EMPLOYEES
As of June, 1996, Mesaba employed 1,543 persons, of whom 486 were
pilots, 186 were management, administrative and clerical personnel, 175 were
aircraft maintenance personnel, 572 were station managers, station agents and
line services personnel, and 124 were flight attendants. Approximately 370 of
Mesaba's employees are part-time.
Mesaba's pilots are represented by the Air Line Pilots Association
("ALPA"). Mesaba has concluded negotiations with ALPA and has reached a new
collective bargaining agreement effective July 1, 1996, with a term of four
years. None of Mesaba's other employees are represented by a union. However,
Mesaba has been notified by the National Mediation Board that an election
involving the aircraft mechanics will be held in July 1996 to determine whether
the aircraft mechanics will gain representation by a union. If the mechanics
vote in favor of union representation, it is likely that the Aircraft Mechanics
Fraternal Association would be their representative. Any work stoppage, whether
from a failure to enter into a new collective bargaining agreement or otherwise,
could have a material adverse impact on the Company.
Mesaba has had no work stoppages and management believes that its
relations with its employees are good.
CYCLICALITY AND SEASONALITY
The airline industry generally is subject to cyclical moves in the
economy. Because both personal discretionary travel and business travel may be
expected to decline during periods of economic weakness, the airline industry
tends to experience poorer financial results during such periods. Further,
because the Company serves primarily the North Central region, its results may
be affected to a greater extent by regional economic variations than the results
of air carriers with national operations.
Seasonal factors, primarily weather conditions and passenger demand,
historically have affected Mesaba's monthly passenger boardings. The first and
second fiscal quarters have typically shown a higher level of passenger
boardings as compared with the third and fourth quarters for many of the cities
served by Mesaba. As a result of such factors, the Company's revenues and
earnings historically have been higher during the first six months of the fiscal
year.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of Mesaba Holdings and Mesaba, a subsidiary of Mesaba Holdings.
Officer
Name Age Position since
---- --- -------- -----
Carl R. Pohlad 80 Chairman of Mesaba Holdings and Mesaba 1995
Bryan K. Bedford 34 President and Chief Executive Officer
of Mesaba Holdings and Mesaba 1995
John S. Fredericksen 47 Vice President, Administration, General
Counsel and Assistant Secretary of
Mesaba Holdings and Mesaba 1992
F. Darrell Richardson 50 Vice President and Chief Operating
Officer of Mesaba 1995
CARL R. POHLAD is a Class Two director and Chairman of the Board of
Directors. Mr. Pohlad has been President and a director of Marquette
Bancshares, Inc. since 1993. Prior to 1993, Mr. Pohlad served as President and
Chief Executive Officer of Marquette Bank Minneapolis and Bank Shares
Incorporated. Mr. Pohlad was Chairman of the Board of MEI Corporation from 1972
to 1986, and Chairman of the Board of MEI Diversified Inc. from 1986 to 1994.
MEI Diversified Inc. filed for Chapter 11 bankruptcy protection in February 1993
and a Plan of Reorganization was confirmed in October 1994, pursuant to which
its assets and liabilities are in the process of being liquidated. Mr. Pohlad
is also an owner, director and the President of CRP Sports, Inc., the managing
general partner of the Minnesota Twins baseball club, and is a director of
Genmar Holdings, Inc.
BRYAN K. BEDFORD is a Class One director and President and Chief
Executive Officer of the Company. Mr. Bedford was President and Chief Executive
Officer of Business Express, Inc. from February 1994 to August 1995. He served
as Executive Vice President and Chief Financial Officer of Phoenix Airline
Services, Inc. from July 1992 to January 1994, and as Vice President and Chief
Financial Officer of WestAir Holding, Inc. from January 1990 to July 1992. From
June 1988 to January 1990, Mr. Bedford was Vice President of Finance of Aspen
Airway, Inc.
JOHN S. FREDERICKSEN joined the Company as Vice President, General
Counsel in July 1992. In August 1993, Mr. Fredericksen was appointed Senior
Vice President, Operations of the Company and Mesaba. He was appointed
Secretary of the Company and Mesaba in November 1994. In October 1995, he was
appointed to his current positions with the Company and Mesaba. From March 1987
until joining the Company, Mr. Fredericksen was employed by the Regional Airline
Association, Washington, D.C., serving most recently as its President. From
1980 until 1987, Mr. Fredericksen was an attorney with the Federal Aviation
Administration.
F. DARRELL RICHARDSON joined the Company as Vice President and Chief
Operating Officer in September 1995. Mr. Richardson was Senior Vice President,
Operations of Phoenix Airline Services, Inc. from November 1993 until joining
the Company. He served as President and Chief Operating Officer of United
Aerodynamics Corporation from July 1991 to October 1993, and as Vice President
of Maintenance and Engineering of Continental Express from June 1989 to June
1991. Prior to June 1989, Mr. Richardson was employed in various positions in
the aviation industry, beginning in 1968.
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ITEM 2. PROPERTIES
See information provided under the captions "Business -- Aircraft,"
"-- Airport and Terminal Facilities and Services," and "-- Properties" in Item 1
herein.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal
proceedings. From time to time the Company may become involved in routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FOURTH
QUARTER OF FISCAL YEAR
There were no matters submitted to a vote of the Company's
shareholders during the three-month period ended March 31, 1996.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded under the symbol "MAIR" on the
Nasdaq National Market.
The following table sets forth the range of high and low sale prices
for the Company's Common Stock and the dividends per share for each of the
fiscal quarters of the two years ended March 31, 1996. Quotations for such
periods are as reported by Nasdaq for National Market issues.
STOCK QUOTATIONS
Dividends
High Low per share
---- --- ---------
Fiscal 1995
First quarter $9-1/2 $7 $.03
Second quarter 7-3/4 5-3/4 .03
Third quarter 8 6 .03
Fourth quarter 8-1/2 6-1/8 .03
Fiscal 1996
First quarter $11 $7-1/2 $.03
Second quarter 14 4-7/8 --
Third quarter 8-7/8 4-7/8 --
Fourth quarter 11-1/4 7 --
On November 10, 1995, the Company announced that it would discontinue
payment of quarterly dividends. The last dividend of $.03 per share was paid
for the quarter ended June 30, 1995. The Company intends to retain earnings
for use in the operation of its business.
On June 20, 1996, the number of holders of record of Common Stock was
981.
The transfer agent for the Company's Common Stock is Norwest Bank
Minnesota, National Association, 161 North Concord Exchange, South St. Paul,
Minnesota, 55075-0738, telephone: (612) 450-4064.
-13-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA AND STATISTICAL COMPARISON
The following table sets forth selected financial data with respect to
the Company as of the dates and for the periods indicated. The selected
financial data has been derived from the audited financial statements. The
financial data set forth below should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in Item
7.
Year Ended March 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(amounts in thousands, except per share data)
Statement of
Operations Data:
---------------
Operating revenues $ 170,455 $ 145,900 $ 129,582 $ 124,331 $ 102,389
Operating expenses 158,148 141,541 122,983 112,028 92,204
-------- --------- --------- --------- ---------
Operating income $ 12,307 $ 4,359 $ 6,599 $ 12,303 $ 10,185
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
Net income $ 56,275 $ 2,606 $ 3,663 $ 6,740 $ 5,822
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
Net income per share $ 4.81* $ 0.29 $ 0.40 $ 0.75 $ 0.66
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
Dividends per share $ 0.03 $ 0.12 $ 0.12 $ 0.12 $ 0.11
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
Weighted Average
number of shares
outstanding
(fully diluted) 11,689 9,113 9,069 8,990 8,778
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
*Includes non-taxable gain of $49,303 from distribution of subsidiary.
-14-
<PAGE>
Year Ended March 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(amounts in thousands)
Balance Sheet Data:
- -------------------
Current assets $ 44,465 $ 46,154 $ 42,942 $ 25,724 $ 21,456
Net property and
equipment 12,388 14,931 13,863 21,319 25,865
Other noncurrent
assets, net 1,351 5,799 3,258 5,055 2,187
-------- -------- -------- -------- --------
Total assets $ 58,204 $ 66,884 $ 60,063 $ 52,098 $ 49,508
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Current liabilities $ 17,323 $ 17,052 $ 11,674 $ 16,695 $ 17,298
Long-term liabilities 6,466 7,388 8,264 9,038 9,839
Shareholders' equity 34,415 42,444 40,125 26,365 22,371
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $ 58,204 $ 66,884 $ 60,063 $ 52,098 $ 49,508
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
-15-
<PAGE>
<TABLE>
<CAPTION>
MESABA, INC. (1)
Year Ended March 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
- ------------------------
Revenue passengers carried 1,572,401 1,433,605 1,429,836 1,306,750 1,067,230
Revenue passenger miles 344,592 314,636 299,267 270,137 216,082
(000's) (2)
Available seat miles 732,018 705,182 663,578 536,216 419,903
(000's) (3)
Passenger revenue per
available seat mile $ .204 $ .191 $ .198 $ .232 $ .244
Cost per available seat mile $ .190 $ .178 $ .185 $ .208 $ .219
Passenger load factor (4) 47.1% 44.6% 45.1% 50.4% 51.5%
Breakeven load factor (5) 43.3% 40.9% 42.8% 45.6% 46.6%
Yield per revenue passenger $ .434 $ .428 $ .427 $ .455 $ .468
mile (6)
Departures 123,985 114,399 108,141 89,011 74,672
</TABLE>
- -----------------
(1) Does not include the operations of AirTran Airways, Inc. which was spun
off from the Company on September 7, 1995.
(2) "Revenue passenger miles" are determined by multiplying the number of
fare paying passengers carried by the distance flown.
(3) "Available seat miles" are determined by multiplying the number of seats
available for passengers by the number of miles flown.
(4) "Passenger load factor" is determined by dividing revenue passenger miles
by available seat miles.
(5) "Breakeven load factor" is computed by dividing the sum of the airline
operating expenses and net interest expense by total airline operating
revenues and multiplying the result by the passenger load factor.
(6) "Yield per revenue passenger mile" is determined by dividing passenger
revenue by revenue passenger miles.
-16-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
EARNINGS SUMMARY
The Company reported net income of $56.3 million or $4.81 per share
for the fiscal year ended March 31, 1996, compared to $2.6 million or $.29 per
share in fiscal 1995 and $3.7 million or $.40 per share in fiscal 1994. The
increase in fiscal 1996 net earnings included a non-cash $49.3 million gain
resulting from the Spin-off of Airways. Net income per share without the
gain was $.60 on 11.7 million fully diluted weighted average shares
outstanding, including a $.02 contribution from Airways. The $.29 per share
earnings in the prior year on 9.1 million weighted average shares outstanding
included a $.38 per share loss from Airways. The increase in the average
number of shares outstanding was due primarily to the issuance of shares to
Northwest Aircraft in lieu of Airways shares, Northwest exercising
pre-existing warrants, and the exercise of stock options by current and
former employees.
RESULTS OF OPERATIONS
OPERATING REVENUES. Operating revenues rose 16.9% to $170.5 million
in fiscal 1996 from $145.9 million in fiscal 1995 and $129.6 million in fiscal
1994. Operating revenues for fiscal 1996 and 1995 included revenues from
Airways of $18.7 million and $9.6 million, respectively. Mesaba's revenues
increased 11.4% in 1996 to $151.8 million from $136.3 million in 1995. This
increase is attributable to a 9.5% increase in revenue passenger miles to 344.6
million and a 1.4% increase in yield per revenue passenger mile to $.434.
Mesaba's average passenger load factor was 47.1% in 1996, up from 44.6% in 1995
and 45.1% in 1994.
OPERATING EXPENSES. Total operating expenses increased 11.7% to
$158.1 million in 1996 from $141.5 million in 1995 and $123.0 million in 1994.
Operating expenses for 1996 and 1995 included expenses from Airways of $18.7
million and $16.0 million, respectively. Mesaba's operating expenses increased
11.1% in 1996 to $139.4 million from $125.5 million and 2.0% in 1995. Mesaba
experienced a 6.7% increase in the cost per available seat mile (ASM) to 19.0
cents compared with 17.8 cents in 1995. Seat capacity (measured in ASMs)
increased 3.8% in 1996 to 732.0 million. During fiscal 1996, Mesaba eliminated
its F27 fleet which consisted of one aircraft, and increased the utilization of
its remaining fleet of Dash 8 and Metro III aircraft to compensate for the
decreased F27 capacity. The following table compares components of Mesaba's
operating cost per ASM for the years ended March 31, 1996, 1995 and 1994:
1996 1995 1994
---- ---- ----
Labor and related 6.0CENTS 5.4CENTS 5.3CENTS
Fuel 2.0 2.0 2.2
Direct maintenance 2.4 1.5 1.5
Passenger related 2.0 1.8 1.9
Depreciation, amortization
and aircraft rentals 4.7 5.2 6.1
Administrative and other 1.9 1.9 1.5
--- --- ---
Total 19.0CENTS 17.8CENTS 18.5CENTS
---------- ---------- ---------
---------- ---------- ---------
Labor and related costs increased to $47.0 million in fiscal 1996
compared to $41.0 million in fiscal 1995 and $35.5 million in 1994. Labor and
related costs for 1996 and 1995 included expenses of Airways of $3.1 million and
$2.8 million, respectively. Mesaba's labor and related costs increased 14.9% to
$43.9 million from $38.2 million in fiscal 1995. Approximately 33% of the
increase was attributable to flight crew labor and maintenance labor cost
increases due primarily to the 10% increase in block hours flown.
Additionally, severance expense, paid primarily to former executives,
accounted for approximately 19% of Mesaba's total increase in labor costs.
Overall, personnel levels (measured on a full time
-17-
<PAGE>
equivalent basis at the fiscal year end) increased 4.5% to approximately 1,458
from 1,395, with the remaining increase due to normal wage and benefit
increases.
Total fuel costs were $17.7 million in fiscal 1996, $16.0 million in
fiscal 1995 and $14.4 million in fiscal 1994. Airways total fuel expense was
$2.9 million in 1996 and $2.2 million in 1995. Mesaba's fuel costs increased
7.7% to $14.8 million. Fuel consumption increased 5% in 1996 and was flat in
1995. The average price per gallon, including taxes and into plane fees, was 80
cents in fiscal 1996 compared to 78 cents in fiscal 1995 and 82 cents in fiscal
1994. Until October 1995, airlines were exempt from a 4.3 cents per gallon
federal tax on aviation fuel. The additional taxes increased Mesaba's fuel
costs by $.4 million in fiscal 1996. Certain provisions of the Airlink
Agreement protect Mesaba from future increases in fuel prices.
Direct maintenance expense, excluding labor and related costs,
increased to $20.0 million in fiscal 1996 from $11.5 million in fiscal 1995 and
$10.2 million in fiscal 1994. Airways' direct maintenance expense was $2.2
million in 1996 and $1.0 million in 1995. Mesaba's direct maintenance cost
increased 69.5% to $17.8 million from $10.5 million. This increase was
attributable to increased fleet utilization of the Metro III and Dash 8
aircraft, a substantial reduction of the number of Dash 8 aircraft under
warranty and an increase in heavy airframe inspections of the Dash 8 fleet.
Also, under the terms of the Airlink Agreement, effective January 1, 1996,
Mesaba became solely responsible for all costs of major overhauls and
repairs on the Dash 8 fleet. Prior to that date, those expenses were paid
directly by Northwest.
Passenger related expenses increased to $18.3 million in fiscal 1996
from $15.5 million in fiscal 1995 and $12.4 million in fiscal 1994. Airways'
passenger related expense totaled $3.4 million in 1996 and $2.6 million in 1995.
Mesaba's passenger related expense increased 15.2% in 1996 to $14.9 million.
Higher traffic volume and increased passenger liability insurance, combined with
increased airport user charges, accounted for the increase.
Depreciation and amortization totaled $5.1 million in fiscal 1996
compared to $6.1 million in fiscal 1995 and $7.5 million in fiscal 1994.
Airways' depreciation and amortization totaled $.9 million in 1996 and $.5
million is 1995. Mesaba's depreciation and amortization decreased 23.8% to $4.2
million, due to decreased equipment purchases and capitalized overhauls as part
of the phase out of the F27 fleet. In April 1992, the Company paid a contract
rights fee in the form of amended stock purchase warrants to Northwest as part
of the extension of the Airlink Agreement. Contract rights are being amortized
on a straight-line basis over the extended term of the Airlink Agreement through
March 31, 1997.
Aircraft rentals were $31.3 million in fiscal 1996, $32.3 million in
fiscal 1995 and $32.9 million in fiscal 1994. Airways' aircraft rentals were
$1.5 million in fiscal 1996 and $1.0 million in fiscal 1995. Mesaba's aircraft
rentals decreased 4.8% to $29.8 million from $31.3 million. The 1996 decrease
in aircraft rentals reflects the turnback of the F27 aircraft and renegotiation
of several Metro III leases resulting in lower lease payments.
Administrative and other costs totaled $18.7 million in fiscal 1996,
$18.6 million in fiscal 1995 and $9.9 million in fiscal 1994. Airways'
administrative and other costs were $4.8 million in 1996 and $5.2 million in
1995. Mesaba's administrative and other costs increased 3.7% in 1996 to $13.9
million from $13.4 million. This increase was due to higher aircraft hull
insurance rates, increased spending for flight crew hotel and per diems and
increased legal and professional fees associated with the Spinoff of Airways.
OPERATING INCOME. The Company's operating income was $12.3 million in
fiscal 1996, $4.4 million in fiscal 1995 and $6.6 million in fiscal 1994.
Mesaba's operating income increased 14.8% to $12.4 million in 1996 from $10.8
million in 1995. Mesaba's operating margins were 8.2% in 1996, 7.9% in 1995 and
5.1% in 1994.
PROVISION FOR INCOME TAXES. The provision for income taxes was $5.7
million in fiscal 1996, $2.5 million in fiscal 1995 and $3.0 million in fiscal
1994. The effective tax rate decreased to 45% in 1996 from 49% in 1995 and 45%
in 1994. This decrease is due primarily to the lower level of nondeductible
expenses as a percentage of taxable income.
-18-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $27.1 million with a
current ratio of 2.6 at March 31, 1996 compared to $29.1 million and 2.7 at
March 31, 1995. Cash and short-term investments increased by $2.6 million to
$29.4 million at March 31, 1996. Net cash flows provided by operating
activities totaled $16.1 million in fiscal 1996 compared to $6.6 million in
fiscal 1995. Net cash flows used for financing activities amounted to $9.4
million in fiscal 1996 and consisted of $8.7 million of proceeds from the
issuance of common stock, less dividends and principal payments of $.8 million.
Funds used for the distribution of Airways Corporation totaled $21.4 million,
offset by a $3.8 million decrease of restricted cash related to Airways' air
traffic liability. Funds used to acquire a subsidiary in 1995 and to purchase
spare parts, equipment and other assets totaled $4.1 million in fiscal 1996,
compared to $7.3 million in 1995.
The Company has a $5.0 million revolving line of credit at prime plus
one-half of 1%. This credit line was not utilized during fiscal 1996. In
addition, a letter of credit facility totaling $.2 million secures a lease
commitment to the County of Wayne, Michigan, for the Company's Detroit hangar.
All borrowings under the revolving line of credit are collateralized by
inventory and accounts receivable.
Long term debt, net of current maturities, totaled $5.7 million at
March 31, 1996 and 1995. Long term debt consists principally of capitalized
lease financing for the Minneapolis/St. Paul and Detroit hangar facilities. The
ratio of long term debt to stockholders' equity was .16 at March 31, 1996
compared to .14 at the end of fiscal 1995.
FAA directives required Mesaba to equip its Metro III fleet with
traffic alert and collision avoidance systems (TCAS) by December 31, 1995.
Mesaba spent $1.0 million in fiscal 1996 modifying the Metro III fleet to meet
these FAA directives. The FAA enacted rules effective March 31, 1997 that
require all airlines operating aircraft with 30 passenger seats or less, which
are presently operated under FAR Part 135, to begin operating those aircraft
under FAR Part 121 regulations, the same regulatory requirements applied to
major airlines. Mesaba currently operates all its aircraft under FAR Part 121.
Accordingly, the new regulations are not expected to have any material impact on
Mesaba's financial position.
At March 31, 1996, Mesaba's fleet consisted of 51 aircraft covered
under operating leases with remaining terms of three months to three years and
aggregate monthly lease payments of approximately $2.5 million. Operating
leases have been the Company's primary method for acquiring aircraft, and
management expects to continue relying on this method to meet most of its future
aircraft financing needs.
Approximately 71% of Mesaba's passengers connected with Northwest in
fiscal 1996, 79% in 1995 and 81% in 1994. Approximately 84% of the Company's
accounts receivable balance at March 31, 1996 is due from Northwest. Loss of
the Company's affiliation with Northwest or Northwest's failure to make timely
payment of amounts owed to the Company or to otherwise materially perform under
the Airlink Agreement for any reason would have a material adverse effect on the
Company's operations and financial results.
The Company has historically relied upon cash reserves, internally
generated funds and borrowings to support its working capital requirements.
Management believes that funds from operations and existing credit lines will
provide adequate resources for meeting non-aircraft capital needs in fiscal
1997.
Prior to the Spinoff the Company contributed cash and property to
Airways having a book value of approximately $20.25 million, which resulted
in a corresponding decrease in the cash and other assets of the Company.
Expenses associated with the Spinoff were expensed for financial
reporting purposes and charged pursuant to the Distribution Agreement to the
party for whose benefit the expenses were incurred. Any expenses which were not
allocated on such a basis were split equally between the Company and Airways.
-19-
<PAGE>
OTHER INFORMATION
On November 10, 1995, the Company announced that it would discontinue
payment of quarterly dividends. The last dividend of $0.03 per share was paid
for the quarter ended June 30, 1995.
On March 7, 1996, Mesaba entered into an agreement to acquire 20
used Saab 340A aircraft and 30 new Saab 340BPlus aircraft, for a total firm
order of 50 aircraft. These aircraft will replace the current fleet of Metro
III and Dash 8 aircraft. In addition, Mesaba has options to acquire up to
12 used Saab 340A and up to 10 new Saab 340BPlus aircraft, for a total of 22
option aircraft. Mesaba has also negotiated a financing agreement with the
airframe manufacturer whereby operating lease financing for both the used and
new aircraft are committed to the Company on competitive rates and terms.
-20-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and financial statement
schedules of the Company and the related Report of Independent Public
Accountants are included in this Form 10-K on the pages indicated below.
PAGE
Report of Independent Public Accountants................................... 22
Consolidated balance sheets as of March 31, 1996 and 1995.................. 23
Consolidated statements of operations for the years
ended March 31, 1996, 1995 and 1994.............................. 24
Consolidated statements of shareholders' equity for the years
ended March 31, 1996, 1995 and 1994.............................. 25
Consolidated statements of cash flows for the years
ended March 31, 1996, 1995 and 1994.............................. 26
Notes to consolidated financial statements................................. 27
-21-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mesaba Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Mesaba Holdings,
Inc. (a Minnesota corporation) and Subsidiary as of March 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended March 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mesaba Holdings, Inc. and
Subsidiary as of March 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 3, 1996
-22-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets as of March 31
(In Thousands, Except Share Information)
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and short-term investments $29,428 $26,851
Restricted cash - 3,765
Accounts receivable, net 9,254 8,844
Inventories 1,666 4,072
Prepaid expenses and deposits 2,774 962
Deferred income taxes 1,343 1,660
---------- ----------
Total current assets 44,465 46,154
---------- ----------
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Flight equipment 10,439 10,416
Other property and equipment 9,644 10,029
Accumulated depreciation and amortization (16,842) (14,661)
---------- ----------
Net property and equipment 12,388 14,931
DEFERRED INCOME TAXES 312 288
OTHER ASSETS, net 1,039 5,511
---------- ----------
$58,204 $66,884
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 399 $ 307
Accounts payable 7,323 7,020
Air traffic liability - 3,628
Accrued liabilities-
Payroll 3,871 2,661
Maintenance 3,341 2,015
Other 2,389 1,421
---------- ----------
Total current liabilities 17,323 17,052
CAPITAL LEASE OBLIGATIONS, net of current maturities 5,654 5,732
OTHER NONCURRENT LIABILITIES, principally accrued
maintenance 812 1,656
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 15,000,000 shares
authorized; 12,744,046 and 8,625,373 shares issued
and outstanding, respectively 127 86
Paid-in capital 39,822 13,199
Warrants issued for 1,499,078 common shares exercised
in August 1995 - 5,089
Retained earnings (deficit) (5,534) 24,070
---------- ----------
Total shareholders' equity 34,415 42,444
---------- ----------
$58,204 $66,884
---------- ----------
---------- ----------
The accompanying notes are an integral part of these
consolidated balance sheets.
-23-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended March 31
(In Thousands, Except Share and Per Share Information)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger $166,900 $142,470 $127,900
General aviation, freight and other 3,555 3,430 1,682
----------- ----------- -----------
Total operating revenues 170,455 145,900 129,582
----------- ----------- -----------
OPERATING EXPENSES:
Flight operations 73,442 71,099 64,189
Maintenance 34,037 25,510 20,839
Aircraft and traffic servicing 32,536 28,416 23,724
Depreciation and amortization 4,854 6,086 7,459
Reservations, sales and marketing 3,546 2,193 334
General and administrative 9,733 8,237 6,438
----------- ----------- -----------
Total operating expenses 158,148 141,541 122,983
----------- ----------- -----------
Operating income 12,307 4,359 6,599
NONOPERATING (EXPENSE) INCOME:
Interest expense (1,441) (562) (649)
Interest income and other 1,761 1,332 709
Gain on distribution of subsidiary 49,303 - -
----------- ----------- -----------
Income before income taxes 61,930 5,129 6,659
PROVISION FOR INCOME TAXES 5,655 2,523 2,996
----------- ----------- -----------
Net income $ 56,275 $ 2,606 $ 3,663
----------- ----------- -----------
----------- ----------- -----------
NET INCOME PER SHARE $ 4.81 $ .29 $ .40
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 11,689 9,113 9,069
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-24-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the Years Ended March 31
(In Thousands, Except Per Share Information)
<TABLE>
<CAPTION> Total
Common Stock Paid-In Warrants Retained Shareholders
Shares Amount Capital Shares Amount Earnings Equity
----------------------- ---------- ----------------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1993 6,881,227 $ 69 $ 1,348 1,529,862 $5,194 $19,754 $26,365
Issuance and sale of common stock 1,379,310 14 9,986 - - - 10,000
Exercise of stock options, net of related tax
effects 176,152 1 1,024 - - - 1,025
Dividends paid on common stock ($.12 per
common share) - - - - - (928) (928)
Net income - - - - - 3,663 3,663
------------- -------- ---------- ------------ --------- -------- ------------
BALANCE, March 31, 1994 8,436,689 84 12,358 1,529,862 5,194 22,489 40,125
Exercise of stock options, net of related tax
effects 157,900 2 647 - - - 649
Exercise of warrants 30,784 - 194 (30,784) (105) - 89
Dividends paid on common stock ($.12 per
common share) - - - - - (1,025) (1,025)
Net income - - - - - 2,606 2,606
------------- -------- ---------- ------------ --------- -------- ------------
BALANCE, March 31, 1995 8,625,373 86 13,199 1,499,078 5,089 24,070 42,444
Stock dividend 2,052,275 21 12,806 - - (12,827) -
Exercise of stock options, net of related
tax effects
567,320 5 4,265 - - - 4,270
Exercise of warrants 1,499,078 15 9,552 (1,499,078) (5,089) - 4,478
Distribution of subsidiary - - - - - (72,531) (72,531)
Dividends paid on common stock ($.06 per - - - - - (521) (521)
common share
Net Income - - - - 56,275 56,275
------------- -------- ---------- ------------ --------- -------- ------------
BALANCE, March 31, 1996 12,744,046 $127 $39,822 - - ($5,534) $34,415
------------- -------- ---------- ------------ --------- -------- ------------
------------- -------- ---------- ------------ --------- -------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-25-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended March 31
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $56,275 $ 2,606 $ 3,663
Adjustments to reconcile net income to net cash provided by
operating activities-
Gain on distribution of subsidiary (49,303) - -
Depreciation and amortization 5,129 6,086 7,459
Accrued maintenance, long-term (701) (531) 785
Deferred income taxes 293 (139) (187)
Change in current operating items:
Accounts receivable, net (1,310) (2,455) (16)
Restricted cash - (3,765)
Inventories 164 (180) 350
Prepaid expenses and deposits (4,174) (599) 6
Accounts payable and accrued liabilities 9,737 1,925 (4,272)
Air traffic liability - 3,628 -
----------- ----------- -----------
Net cash flows provided by operating activities 16,110 6,576 7,788
----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisition of jet operation - (2,500) -
Purchases of property and equipment, net (4,127) (3,564) (1,006)
(Increase) decrease in other assets - (1,266) 113
Decrease in other liabilities (4) (17) (17)
----------- ----------- -----------
Net cash flows used for investing activities (4,131) (7,347) (910)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 300 - -
Distribution of subsidiary (21,372) - -
Distribution of restricted cash of subsidiary 3,765 - -
Repayment of capital lease obligations (322) (503) (1,349)
Proceeds from issuance of common stock 8,748 738 11,025
Dividends paid (521) (1,025) (928)
----------- ----------- -----------
Net cash flows provided by (used for) financing
activities (9,402) (790) 8,748
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS 2,577 (1,561) 15,626
CASH AND SHORT-TERM INVESTMENTS:
Beginning of year 26,851 28,412 12,786
----------- ----------- -----------
End of year $ 29,428 $26,851 $28,412
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 1,455 $ 576 $ 638
Income taxes $ 5,296 $ 2,759 $ 3,351
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-26-
<PAGE>
Exhibit 23
MESABA HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Share and Per Share Information)
1. Corporate Organization and Business:
CORPORATE ORGANIZATION
The consolidated financial statements include the accounts of Mesaba Holdings,
Inc. (the "Company") and its subsidiary, Mesaba Aviation, Inc. ("Mesaba"). The
statements also include the results of operations of Airways Corporation
("Airways") and its subsidiary Airtran Airways, Inc. ("Airtran Airways") prior
to the distribution of 100% of the outstanding common stock of Airways to the
Company's shareholders in September 1995 (see Note 8). All significant
intercompany balances have been eliminated in consolidation.
BUSINESS
Mesaba operates a regional air carrier providing scheduled passenger and air
freight service as Mesaba Airlines/Northwest Airlink under an Airline
Services Agreement (the Airlink Agreement) with Northwest Airlines, Inc.
(Northwest) to 60 cities in the Upper Midwest from Northwest's hub airports,
Minneapolis/Saint Paul and Detroit. The Airlink Agreement provides for
exclusive rights to designated service areas and runs through March 31, 1997,
automatically renewing indefinitely thereafter. Either party may terminate
the Airlink Agreement on eight months notice any time after July 31, 1996.
Under the Airlink Agreement, all Mesaba flights appear in Northwest's
timetables and Mesaba receives ticketing and certain check-in, baggage and
freight-handling services from Northwest at certain airports. In addition,
at certain airports Mesaba purchases fuel from Northwest. The Company paid
$7,526 to Northwest for fuel, reservation systems, ground handling and other
services in fiscal 1996, $3,166 in 1995 and $720 in 1994. The Airlink
Agreement provides for certain incentive payments from Northwest to Mesaba
based on achievement of certain operational or financial goals, as defined.
Such incentives totaled $1,643 in 1996, $1,192 in 1995, and $66 in 1994.
Mesaba also benefits from its relationship with Northwest through prorated
fare arrangements and advertising and marketing programs. (See Note 8 for
additional agreements with Northwest).
Approximately 71% of Mesaba's passengers connected with Northwest in fiscal
1996, 79% in 1995 and 81% in 1994. Approximately 84% of the March 31, 1996
accounts receivable balances in the accompanying consolidated balance sheet are
due from Northwest. The Company believes that Northwest's Minneapolis and
Detroit hubs will continue to serve as key air traffic centers. Although Mesaba
maintains an expanding air system serving those traffic centers, loss of
Mesaba's affiliation with Northwest or Northwest's failure to make timely
payment of amounts owed to the Company or to otherwise materially perform under
the Airlink Agreement would have a material adverse effect on the Company's
operations, financial position and cash flows. Northwest and the Company review
contract compliance on a periodic basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND SHORT-TERM INVESTMENTS
Short-term investments, which consist primarily of U.S. government securities
and interest-bearing deposits with maturities of less than 90 days, are stated
at cost, which approximates market. These investments are considered cash
equivalents for statement of cash flows purposes. In 1995, restricted cash
represented amounts escrowed relating to the Company's air traffic liability
associated with Airtran Airways.
-27-
<PAGE>
INVENTORIES
Inventories are stated at the lower of average cost or market and consist of
expendable aircraft service parts, and fuel. Expendable parts are charged to
maintenance as used.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis for financial reporting purposes over estimated useful lives of 5-10 years
for aircraft engines, flight equipment and rotable parts; 3-10 years for all
other equipment; 5-36 years for buildings and improvements; and over the lease
term for facilities under capital lease. Leasehold improvements are amortized
over the shorter of the life of the lease or the life of the asset. Accelerated
cost recovery methods of depreciation are applied for tax reporting purposes.
AIRLINK CONTRACT RIGHTS
In connection with the Airlink Agreement, the Company paid a contract rights fee
in the form of a stock purchase warrant to Northwest. In addition, the Company
agreed to fund certain costs related to the transition of Airlink operations in
the Detroit and Milwaukee service areas. Such transition costs and fees are
included as contract rights and are fully recoverable under the terms of the
Airlink Agreement. Contract rights and related other assets totaled $5,769 and
related accumulated amortization totaled $4,731 at March 31, 1996. Contract
rights are amortized on a straight-line basis over five years to coincide with
the minimum term of the Airlink Agreement.
REVENUE RECOGNITION
Passenger revenues are recorded as income when the respective services are
rendered.
FREQUENT FLYER AWARDS
As a Northwest Airlink carrier, Mesaba participates in Northwest's frequent
flyer program (WorldPerks), and passengers may use mileage accumulated in that
program to obtain discounted or free trips that might include a flight segment
on one of Mesaba's flights. However, under the Airlink Agreement, Northwest is
responsible for the administration of WorldPerks, and Mesaba receives revenue
from Northwest for WorldPerks travel awards redeemed on Mesaba flight segments.
INCOME TAXES
The Company accounts for income taxes in accordance with the liability method of
accounting. Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities . These differences will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income.
INCOME PER SHARE
Net income per share has been computed based upon the weighted average number of
common and dilutive common equivalent shares outstanding during each year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and
-28-
<PAGE>
liabilities and disclosure of contingent liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
3. FLIGHT EQUIPMENT:
The Company's airline fleet consisted of the following aircraft held under
operating leases as of March 31, 1996:
Number of Seating
Aircraft Type of Aircraft Capacity
---------- ----------------------- -------------
25 de Havilland Dash 8 (Dash 8) 37
26 Fairchild Metro III (Metro III) 19
Under terms of the Airlink Agreement, the Company subleases its Dash 8 aircraft
from Northwest under operating leases with original terms of up to five years.
The Airlink Agreement allows the Company to return aircraft to Northwest upon
the occurrence of certain events, including termination or breach of the Airlink
Agreement. These leases require rental payments of approximately $863 per year
for each aircraft.
Until January 1, 1996 the Airlink Agreement required Northwest to provide for
all major maintenance and overhauls for Dash 8 aircraft. Pursuant to an
amendment to the Airlink Agreement, along with revenue enhancements, the
responsibility for certain Dash 8 maintenance costs up to a specified level were
transferred to Mesaba effective January 1, 1996.
Aircraft maintenance and repairs on Metro III aircraft are charged to expense
when incurred, except for the cost of major airframe and engine overhauls, for
which the estimated cost is accrued and charged to maintenance expense based
upon hours flown pursuant to the specific lease agreements, thus providing for
the overhaul cost when it occurs.
The aircraft operating leases require future minimum rental payments as follows
at March 31, 1996:
1997 $26,586
1998 13,998
1999 2,035
2000 396
Rent expense under aircraft operating leases totaled approximately $31,330 in
1996, $31,262 in 1995 and $32,914 in 1994 (including $21,564, $21,626 and
$21,088 paid to Northwest in 1996, 1995 and 1994, respectively) and is included
in flight operations in the accompanying consolidated statements of operations.
On March 7, 1996, the Company entered into an agreement with Saab Aircraft AB to
acquire up to 72 Saab 340 aircraft (50 firm orders, 22 options). The thirty to
thirty-four passenger Saab regional airliner will replace Mesaba's current fleet
of 51 aircraft within the next three years.
4. REVOLVING CREDIT AGREEMENT:
The Company has an unsecured credit agreement with a bank providing for
borrowings of up to $5,000 and a letter-of-credit agreement of up to $200. No
amounts were outstanding under the credit agreement during the three years ended
March 31, 1996. Compensating balances in an amount equal to 5% of the available
revolving line-of-credit facility are required to be maintained ($250 as of
March 31, 1996). The
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<PAGE>
credit agreement requires the Company to maintain minimum levels of tangible net
worth, net working capital and certain other financial ratios. The Company was
in compliance with these requirements at March 31, 1996.
5. INCOME TAXES:
The provision for income taxes for the three years ended March 31 is comprised
of the following elements:
1996 1995 1994
-------- -------- --------
Current:
Federal $4,130 $2,131 $2,536
State 1,232 531 647
Deferred 293 (139) (187)
-------- -------- --------
Total provision for income taxes $5,655 $2,523 $2,996
-------- -------- --------
-------- -------- --------
The actual income tax expense differs from the expected tax expense for 1996,
1995 and 1994 (computed by applying the U.S. federal corporate tax rate of 35
percent in 1996 and 1995 and 34 percent in 1994 to earnings before income taxes)
as follows in thousands:
1996 1995 1994
-------- -------- --------
Computed tax expense at statutory rate 21,675 1,795 2,264
Increase (decrease) in income taxes
resulting from:
Tax free distribution of Subsidiary (17,256) -- --
State taxes, net of federal tax benefit 933 343 400
Non-deductible flight crew expenses 251 262 230
Other, net 52 123 102
------- ------- -------
Total income tax expense 5,655 2,523 2,996
------- ------- -------
------- ------- -------
-30-
<PAGE>
Deferred tax assets and liabilities are comprised of the following as of
March 31:
1996 1995
------- -------
Deferred tax assets:
Maintenance $1,660 $1,240
Accrued vacation 594 483
Property taxes 236 181
Prepaid rent 166 176
Workers' compensation insurance 154 118
Other 26 186
------- -------
Gross deferred tax assets 2,836 2,384
------- -------
Deferred tax liabilities:
Property and equipment 1,009 192
Preoperating costs 71 128
Integration funds 101 116
------- -------
Gross deferred tax liabilities 1,181 436
------- -------
Net deferred tax assets $1,655 $1,948
------- -------
------- -------
6. SHAREHOLDERS' EQUITY:
STOCK OPTION PLANS
The Company has stock option plans for key employees and directors which
authorize the issuance of shares of common stock for such options. Under the
plans, options are granted by the compensation committee of the board of
directors and are exercisable for five years commencing one year after the date
of grant. The purchase price of the stock is 110% of the fair market value of
the stock at the date of grant for participants owning 10% or more of the
outstanding common stock and 100% of the fair market value for all other
participants. In connection with the spin-off outstanding options were repriced
in relation to the fair market value of the Company, post-spin-off (see Note 8).
-31-
<PAGE>
Stock option transactions for the three years ended March 31 were as follows:
Shares Price Per Share
------------ -----------------
Options outstanding, March 31, 1993 823,920 $1.75-$8.00
Granted 442,000 $8.75-$10.25
Exercised (178,200) $1.75-$6.75
Canceled (2,000) $6.75
------------
Options outstanding, March 31, 1994 1,085,720 $2.13-$10.25
Granted 239,000 $6.76-$7.75
Exercised (157,900) $2.13-$6.75
Canceled (29,200) $9.50
------------
Options outstanding, March 31, 1995 1,137,620 $2.13-$10.25
Granted 461,000 $4.38-$7.88
Exercised (567,320) $2.13-$9.50
Canceled (403,800) $6.75-$10.25
------------
Options outstanding, March 31, 1996 627,500 $4.13-$7.88
------------
------------
Exercisable at March 31, 1996 170,500
------------
------------
Available for grant at March 31, 1996 521,500
------------
------------
STOCK PURCHASE PLAN
The Company has an employee stock purchase plan which allows all full-time
personnel employed for more than six months the opportunity to purchase shares
of stock in the Company at the market price through payroll deductions. All
administrative costs of this plan are paid by the Company.
COMMON STOCK TRANSACTIONS
On October 19, 1993, the Company issued and sold 1,379,310 shares of its common
stock to an investor in a private placement at the price of $7.25 per share.
The proceeds of the sale totaled $10,000.
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<PAGE>
7. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
In addition to the aircraft described in Note 3, the Company leases land, office
and hangar facilities and certain terminal facilities under capitalized and
operating leases which provide for approximate future minimum rental payments as
follows at March 31, 1996:
Capitalized Operating
Leases Leases
--------------- ------------
1997 $ 783 $ 267
1998 783 250
1999 783 250
2000 783 250
2001 783 250
Thereafter 5,286 2,113
------- --------
9,201 $3,380
Less- Amount representing interest 3,148 --------
------- --------
6,053
Less- Current maturities 399
-------
Total long-term capital lease obligations $ 5,654
-------
-------
Rent expense under all facility operating leases totaled approximately $2,405 in
1996, $1,928 in 1995 and $1,875 in 1994.
BENEFIT PLAN
The Company maintains a 401(k) benefit plan for eligible employees whereby the
Company will match 25% of employee contributions to the plan, up to 6% of each
employee's compensation. The Company's contribution to the plan totaled $303 to
the plan in 1996, $291 in 1995 and $235 in 1994.
LITIGATION
The Company is a party to ongoing legal and tax proceedings arising in the
ordinary course of business. In the opinion of management, the resolution of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations, or its cash flows.
-33-
<PAGE>
8. SPIN-OFF:
In June 1994, the Company acquired the common stock of Conquest Sun Airlines,
Inc. (Conquest) for $2,500. The acquisition was recorded under the purchase
method of accounting. Subsequent to the transaction the company's name was
changed to Airtran Airways.
In March 1995, the Company and Northwest entered into an agreement to spin off
Airtran Airways and Mesaba's fixed base operation (FBO) in Grand Rapids,
Minnesota. Under the terms of the spin-off, the Company established a new
subsidiary (Airways Corporation) and consolidated Airtran Airways and the FBO,
in order to facilitate the distribution of Airways Corporation's common stock to
the Company's shareholders. In addition, The Company made a $20,250
contribution in cash and certain assets to Airways prior to the spin-off date.
Also in connection with the spin-off, Northwest waived its right to receive a
distribution of Airways Corporation common stock, in exchange for 2,052,275
shares of Mesaba Holdings, Inc. common stock. Northwest exercised its warrants
to purchase 1,499,078 shares of the Company's common stock at their stated
exercise price. Subsequent to these transactions, Northwest owned approximately
29.7% of the outstanding shares of the Company's common stock. In addition,
Northwest assumed responsibility for setting Mesaba's flight schedules and
aircraft routings. Northwest and Mesaba also entered into a good faith
agreement to extend the Airlink Agreement for a minimum of ten years. Northwest
agreed to make quarterly payments to Mesaba which, together with payments under
the Airlink Agreement, guarantees that Mesaba's pretax income will be not less
than $7.6 million for the last three quarters of fiscal 1996 and $10.0 million
for fiscal 1997. Revenues do not include any payments made to Mesaba pursuant
to the income guarantee as the Company's internally generated profits exceeded
the guarantee amount.
Concurrent with the spin-off date, outstanding Company stock options were
repriced (lowered by $2.00 per share) in relation to the fair market value of
the Company post-spin-off of Airways. Unexercised options previously granted
to certain directors and officers who became affiliated with Airways were
canceled.
At a special meeting held on August 29, 1995, the Company's shareholders
ratified the distribution of 100% of the outstanding common stock of its wholly
owned subsidiary, Airways, to the Company's shareholders. The shareholders also
approved a proposal to change the Company's name to Mesaba Holdings, Inc. from
Airtran Corporation. Following the distribution of the Airways stock on
September 7, 1995, the sole business of the Company has consisted of the
regional airline operations of Mesaba.
The Company recorded a one-time gain of $49,303 in the second quarter as a
result of the tax-free distribution of Airways to the Company's shareholders.
The gain reflects the difference between the book value of the Airways stock
distributed in the spin-off and the actual market value of such stock on
September 8, 1995.
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<PAGE>
9. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
Quarters of Fiscal Year Ended March 31, 1996
--------------------------------------------------------
June 30, September 30, December 31, March 31, Fiscal
1995 1995 1995 1996 Year 1996
-------- -------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Total operating revenues $44,647 $46,980 $37,554 $41,274 $170,455
Operating income $ 2,375 $ 4,593 $ 2,820 $ 2,519 $ 12,307
Net income $ 1,408 $51,857 $ 1,641 $ 1,369 $ 56,275
Net income per share $ .14 $ 4.71 $ .13 $ .11 $ 4.81
Dividends per share $ .03 $ - $ - $ - $ .03
Weighted average shares
outstanding (000) 10,021 11,016 12,765 12,953 11,689
<CAPTION>
Quarters of Fiscal Year Ended March 31, 1995
--------------------------------------------------------
June 30, September 30, December 31, March 31, Fiscal
1994 1994 1994 1995 Year 1995
-------- -------------- -------------- ------------ -----------
Total operating revenues $33,815 $36,090 $35,807 $40,188 $145,900
Operating income (loss) $ 2,402 $ 2,811 $ (475) $ (379) $ 4,359
Net income (loss) $ 1,337 $ 1,677 $ (126) $ (282) $ 2,606
Net income (loss) per share $ .14 $ .18 $ (.01) $ (.03) $ .29
Dividends per share $ .03 $ .03 $ .03 $ .03 $ .12
Weighted average shares
outstanding (000) 9,696 9,554 8,589 8,611 9,113
</TABLE>
10. NEW ACCOUNTING STANDARD
Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121 imposes criteria
for evaluating the realizability of long-lived assets by requiring that such
assets be probable of future recovery at each balance sheet date. The Company
adopted SFAS 121 during fiscal 1996 and the effect of the adoption did not have
a material effect on the Company's financial position or results of operations.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is
incorporated herein by reference to the descriptions set forth under the caption
"Election of Directors" in the Proxy Statement for the 1996 Annual Meeting of
Shareholders (the "1996 Proxy Statement"). Information regarding executive
officers of the Company is incorporated herein by reference to Item 1 of this
Form 10-K under the caption "Executive Officers of the Company" on page 11.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the information set forth under the caption "Compensation of
Executive Officers" in the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management of the Company is incorporated herein by reference to the
information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
with the Company is incorporated herein by reference to the information set
forth under the caption "Certain Transactions" in the 1996 Proxy Statement.
-36-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED WITH THIS REPORT.
(1) Financial Statements of Mesaba Holdings, Inc.
Page of
this form
10-K
----
Report of Independent Public Accountants 22
Consolidated balance sheets as of March 31, 1996
and 1995 23
Consolidated statements of operations for the years
ended March 31, 1996, 1995 and 1994 24
Consolidated statements of shareholders' equity for
the years ended March 31, 1996, 1995 and 1994 25
Consolidated statements of cash flows for the years
ended March 31, 1995, 1995 and 1994 26
Notes to consolidated financial statements 27
(2) Not applicable
-37-
<PAGE>
(3) Exhibits
3A. Restated Articles of Incorporation. Incorporated by reference
to Exhibit 3.1 to the Company's Form 10-Q for the quarter ended
September 31, 1995.
3B. Bylaws. Incorporated by reference to Exhibit 3.2 to the Form
S-4.
4A. Specimen certificate for shares of the Common Stock of the
Company. Incorporated by reference to Exhibit 4A to the
Company's Form 10-K for the year ended March 31, 1989.
9A. Shareholder's Agreement regarding election of representative of
Northwest Aircraft Inc. to Board of Directors. Incorporated by
reference to Exhibit 9A to Mesaba's Registration Statement on
Form S-1, Registration No. 33-820.
10A. FAA Air Carrier Operating Certificate. Incorporated by
reference to Exhibit 10A to the Company's Form 10-K for the year
ended March 31, 1989.
10B. 1986 Stock Option Plan (as Amended). Incorporated by reference
to Exhibit 10D to the Company's Form 10-K for the year ended
March 31, 1990.
10C. 1991 Director Stock Option Plan. Incorporated by reference to
Exhibit 10(i) to the Company's Registration Statement on Form
S-8, Registration No. 33-62386.
10D. CAB Part 298 Registration. Incorporated by reference to Exhibit
10G to Mesaba's Form 10-K for the year ended March 31, 1987.
10E. Revolving Credit and Term Loan Agreement Dated as of November 7,
1988 between Norwest Bank Minnesota, N.A. and Mesaba Incorporated
by reference to Exhibit 10F to the Company's Form 10-K for the
year ended March 31, 1989.
10F. Airline Services Agreement between Northwest Airlines, Inc. and
Mesaba (certain portions of this agreement are subject to
an order granting confidential treatment pursuant to Rule
24b-2). Incorporated by reference to Exhibit 10V to the
Company's Form 10-Q for the quarter ended September 30, 1988.
10G. Amendment No. 3 to Airline Services Agreement between Northwest
Airlines, Inc. and Mesaba dated as of April 1, 1992
(certain portions of this amendment are subject to an order
granting confidential treatment under Rule 24b-2). Incorporated
by reference to Exhibit 10H to the Company's Form 10-K for the
year ended March 31, 1992.
10H. Foreign Air Carrier Operating Certificates issued May 6, 1991 by
the Canadian Department of Transport. Incorporated by reference
to Exhibit 10H to the Company's Form 10-K for the year ended
March 31, 1991.
10I. Facility Lease and Operating Agreement dated April 18, 1988,
between the Metropolitan Airport Commission and Mesaba
Incorporated by reference to Exhibit 10K to the Company's Form
10-K for the year ended March 31, 1989.
10J. Ninth Amendment to Revolving Credit and Term Loan Agreement and
Fifth Amendment to Revolving Note between Mesaba and Norwest
Bank Minnesota, National Association.
10K. Letter of Credit and Reimbursement Agreement dated as of
August 1, 1990 between Mesaba and Norwest Bank Minnesota,
National Association. Incorporated by reference to Exhibit 10A
to the Company's Form 10-Q for the quarter ended September 30,
1990.
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<PAGE>
10L. Special Facilities Lease dated as of August 1, 1990 between
Charter County of Wayne, State of Michigan and Mesaba, Inc.
Incorporated by reference to Exhibit 10B to the Company's Form
10-Q for the quarter ended September 30, 1990.
10M. Ground Lease dated August 1, 1990 between Charter County of
Wayne, State of Michigan and Mesaba Incorporated by reference
to Exhibit 10C to the Company's Form 10-Q for the quarter ended
September 30, 1990.
10N. Combination Leasehold Mortgage, Assignment of Rents, Security
Agreement and Fixture Financing Statement dated as of August 1,
1990 between Mesaba and Norwest Bank Minnesota, National
Association. Incorporated by reference to Exhibit 10D to the
Company's Form 10-Q for the quarter ended September 30, 1990.
10O. Letter Agreement dated December 24, 1992 relating to the
repurchase of shares of Common Stock from Northwest Aircraft,
Inc. Incorporated by reference to Exhibit 10EE to the Company's
Form 10-K for the year ended March 31, 1993.
10P. DOT Certificate of Public Convenience and Necessity dated
October 26, 1992. Incorporated by reference to Exhibit 10FF of
the Company's Form 10-K for the year ended March 31, 1993.
10Q. Stock Purchase Agreement between AirTran Corporation and Carl R.
Pohlad dated as of October 18, 1993. Incorporated by reference
to Exhibit 10 of the Company's Form 8-K dated October 19, 1993.
10R. AirTran Corporation 1994 Stock Option Plan. Incorporated by
reference to Exhibit 10 of the Company's Form S-8 Registration
Statement as filed March 2, 1995 (Registration No. 33-89930).
10S. Agreement between AirTran Corporation, Mesaba, Northwest
Aircraft, Inc., and Northwest Airlines, Inc. dated May 18, 1995.
Incorporated by reference to Exhibit 10A of the Company's Form
8-K as filed May 18, 1995.
10T. Preliminary Agreement between AirTran Corporation, Mesaba and
Northwest Airlines, Inc. dated March 8, 1995. Incorporated
by reference to Exhibit 10 of the Company's Form 8-K as filed
March 8, 1995.
10U. Term Sheet Proposal for the Acquisition of Saab 340 Aircraft by
Mesaba Aviation, Inc. dated March 7, 1996 (certain portions of
this document have been deleted pursuant to an application for
confidential treatment under Rule 24b-2).
10V. Letter Agreement regarding Saab 340BPlus Acquisition Financing
dated March 7, 1996 (certain portions of this document have been
deleted pursuant to an application for confidential treatment
under Rule 24b-2).
10W. Letter Agreement of April 26, 1996 relating to Airline Services
Agreement between Mesaba Aviation, Inc. and Northwest Airlines,
Inc. (certain portions of this document have been deleted
pursuant to an application for confidential treatment under Rule
24b-2).
10X. Letter Agreement of April 28, 1996 relating to Airline Services
Agreement between Mesaba Aviation, Inc. and Northwest Airlines,
Inc.
11. Statement regarding computation of per share earnings.
21. Subsidiaries.
23. Consent of independent public accountants.
24. Powers of Attorney.
27. Financial Data Schedules.
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<PAGE>
(b) REPORTS ON FORM 8-K. During the Company's fourth quarter of
1996, the Company did not file any reports on Form 8-K.
-40-
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: June 28, 1996 MESABA HOLDINGS, INC.
By /s/ Bryan K. Bedford
---------------------
Bryan K. Bedford
President and Chief Executive Officer
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Bryan K. Bedford President and Chief Executive Officer June 28, 1996
- ------------------------ (Principal Executive Officer) and
Bryan K. Bedford Director
/s/ Robert H. Cooper Director of Finance (Principal June 28, 1996
- ------------------------ Financial Officer)
Robert H. Cooper
/s/ Jon R. Meyer
- ------------------------ Controller (Principal Accounting June 28, 1996
Jon R. Meyer Officer)
* Director June 28, 1996
- ------------------------
Donald E. Benson
* Director June 28, 1996
- ------------------------
Christopher E. Clouser
*
Director June 28, 1996
- ------------------------
Richard B. Hirst
* Director June 28, 1996
- ------------------------
Carl R. Pohlad
* Director June 28, 1996
- ------------------------
Robert C. Pohlad
*
Director June 28, 1996
- ------------------------
Donald A. Washburn
* Director June 28, 1996
- ------------------------
Raymond W. Zehr, Jr.
*By /s/ Bryan K. Bedford Attorney-in-fact June 28, 1996
---------------------
Bryan K. Bedford
<PAGE>
EXHIBIT INDEX
MANUALLY
NUMBERED PAGE
EXHIBIT NO. EXHIBIT REFERENCES
- ----------- ------- ------------
3A. Restated Articles of Incorporation. Incorporated
by reference to Exhibit 3.1 to the Company's Form
10-Q for the quarter ended September 31, 1995.
3B. Bylaws. Incorporated by reference to Exhibit 3.2
to the Form S-4.
4A. Specimen certificate for shares of the Common Stock
of the Company. Incorporated by reference to
Exhibit 4A to the Company's Form 10-K for the year
ended March 31, 1989.
9A. Shareholder's Agreement regarding election of
representative of Northwest Aircraft Inc. to Board
of Directors. Incorporated by reference to Exhibit
9A to Mesaba's Registration Statement on Form S-1,
Registration No. 33-820.
10A. FAA Air Carrier Operating Certificate.
Incorporated by reference to Exhibit 10A to the
Company's Form 10-K for the year ended March 31,
1989.
10B. 1986 Stock Option Plan (as Amended). Incorporated
by reference to Exhibit 10D to the Company's Form
10-K for the year ended March 31, 1990.
10C. 1991 Director Stock Option Plan. Incorporated by
reference to Exhibit 10(i) to the Company's
Registration Statement on Form S-8, Registration
No. 33-62386.
10D. CAB Part 298 Registration. Incorporated by
reference to Exhibit 10G to Mesaba's Form 10-K for
the year ended March 31, 1987.
10E. Revolving Credit and Term Loan Agreement Dated as
of November 7, 1988 between Norwest Bank Minnesota,
N.A. and Mesaba, Inc. Incorporated by reference to
Exhibit 10F to the Company's Form 10-K for the year
ended March 31, 1989.
10F. Airline Services Agreement between Northwest
Airlines, Inc. and Mesaba, Inc. (certain portions
of this agreement are subject to an order granting
confidential treatment pursuant to Rule 24b-2).
Incorporated by reference to Exhibit 10V to the
Company's Form 10-Q for the quarter ended September
30, 1988.
<PAGE>
10G. Amendment No. 3 to Airline Services Agreement
between Northwest Airlines, Inc. and Mesaba
dated as of April 1, 1992 (certain portions of this
amendment are subject to an order granting
confidential treatment under Rule 24b-2).
Incorporated by reference to Exhibit 10H to the
Company's Form 10-K for the year ended March 31,
1992.
10H. Foreign Air Carrier Operating Certificates issued
May 6, 1991 by the Canadian Department of
Transport. Incorporated by reference to Exhibit
10H to the Company's Form 10-K for the year ended
March 31, 1991.
10I. Facility Lease and Operating Agreement dated April
18, 1988, between the Metropolitan Airport
Commission and Mesaba Incorporated by reference to
Exhibit 10K to the Company's Form 10-K for the year
ended March 31, 1989.
10J. Ninth Amendment to Revolving Credit and Term Loan
Agreement and Fifth Amendment to Revolving Note between
Mesaba and Norwest Bank Minnesota, National Association.
10K. Letter of Credit and Reimbursement Agreement dated
as of August 1, 1990 between Mesaba and Norwest Bank
Minnesota, National Association. Incorporated by reference
to Exhibit 10A to the Company's Form 10-Q for the quarter
ended September 30, 1990.
10L. Special Facilities Lease dated as of August 1, 1990
between Charter County of Wayne, State of Michigan
and Mesaba Incorporated by reference to Exhibit 10B
to the Company's Form 10-Q for the quarter ended
September 30, 1990.
10M. Ground Lease dated August 1, 1990 between Charter
County of Wayne, State of Michigan and Mesaba
Incorporated by reference to Exhibit 10C to the
Company's Form 10-Q for the quarter ended September
30, 1990.
10N. Combination Leasehold Mortgage, Assignment of
Rents, Security Agreement and Fixture Financing
Statement dated as of August 1, 1990 between
Mesaba and Norwest Bank Minnesota, National
Association. Incorporated by reference to Exhibit
10D to the Company's Form 10-Q for the quarter
ended September 30, 1990.
10O. Letter Agreement dated December 24, 1992 relating
to the repurchase of shares of Common Stock from
Northwest Aircraft, Inc. Incorporated by reference
to Exhibit 10EE to the Company's Form 10-K for the
year ended March 31, 1993.
<PAGE>
10P. DOT Certificate of Public Convenience and Necessity
dated October 26, 1992. Incorporated by reference
to Exhibit 10FF of the Company's Form 10-K for the
year ended March 31, 1993.
10Q. Stock Purchase Agreement between AirTran
Corporation and Carl R. Pohlad dated as of October
18, 1993. Incorporated by reference to Exhibit 10
of the Company's Form 8-K dated October 19, 1993.
10R. AirTran Corporation 1994 Stock Option Plan.
Incorporated by reference to Exhibit 10 of the
Company's Form S-8 Registration Statement as filed
March 2, 1995 (Registration No. 33-89930).
10S. Agreement between AirTran Corporation, Mesaba,
Northwest Aircraft, Inc., and Northwest Airlines,
Inc. dated May 18, 1995. Incorporated by reference
to Exhibit 10A of the Company's Form 8-K as filed
May 18, 1995.
10T. Preliminary Agreement between AirTran Corporation,
Mesaba and Northwest Airlines, Inc. dated March 8,
1995. Incorporated by reference to Exhibit 10 of the
Company's Form 8-K as filed March 8, 1995.
10U. Term Sheet Proposal for the Acquisition of Saab 340
Aircraft by Mesaba Aviation, Inc. dated March 7,
1996 (certain portions of this document have been
deleted pursuant to an application for confidential
treatment under Rule 24b-2).
10V. Letter Agreement regarding Saab 340BPlus Acquisition
Financing dated March 7, 1996 (certain portions of
this document have been deleted pursuant to an application
for confidential treatment under Rule 24b-2).
10W. Letter Agreement of April 26, 1996 relating to
Airline Services Agreement between Mesaba Aviation,
Inc. and Northwest Airlines, Inc. (certain portions
of this document have been deleted pursuant to an
application for confidential treatment under Rule
24b-2).
10X. Letter Agreement of April 28, 1996 relating to Airline Services
Agreement between Mesaba Aviation, Inc. and Northwest Airlines,
Inc.
11. Statement regarding computation of per share
earnings.
21. Subsidiaries.
23. Consent of independent public accountants.
24. Powers of Attorney.
27. Financial Data Schedules.
<PAGE>
NINTH AMENDMENT TO REVOLVING CREDIT AND
TERM LOAN AGREEMENT AND
FIFTH AMENDMENT TO REVOLVING NOTE
This Amendment, is made as of this 28th day of August, 1995, between MESABA
AVIATION, INC., a Minnesota corporation (the "Borrower") and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association (the "Bank")
RECITALS
A. The Borrower and the Bank have entered into a Revolving
Credit and Term Loan Agreement dated as of November 7, 1988 (the "Credit
Agreement") -
B. Pursuant to the Credit Agreement, the Borrower issued to the
Bank (i) its Revolving Note dated November 7, 1988, in the principal amount of
$3,000,000 (the "original Revolving Note") and (ii) its Term Note dated November
7, 1988, in the principal amount of $6,000,000 (the "Term Note").
C. The Borrower and the Bank have entered into a First
Amendment to Revolving Credit and Term Loan Agreement dated as of April 21, 1989
(the "First Amendment"), pursuant to which the Bank extended the date through
which the Bank would make Advances under the Term Loan Commitment from March 31,
1989 to June 30, 1989.
D. The Borrower and the Bank have entered into a Second
Amendment to Revolving Credit and Term Loan Agreement dated as of June 26, 1989
(the "Second Amendment"), pursuant to which the Bank extended the date through
which the Bank would make Advances under the Term Loan Commitment from June 30,
1989 to September 30, 1989.
E. The Borrower and the Bank have entered into a Third
Amendment to Revolving Credit and Term Loan Agreement dated as of November 8,
1989 (the "Third Amendment"), pursuant to which the Bank (i) increased the
Revolving Loan Commitment to $5,000,000, (ii) extended the date through which
the Bank would make Advances under the Revolving Loan Commitment to December 31,
1991, and (iii) extended the date through which the Bank would make Advances
under the Term Loan Commitment to December 31, 1989.
F. Pursuant to the Third Amendment, the Borrower issued to the
Bank its Revolving Note dated November 8, 1989, in the principal amount of
$5,000,000 (the "Replacement Revolving Note") in substitution for, but not in
payment of, the original Revolving Note.
G. The Borrower and the Bank have entered into a Fourth
Amendment to Revolving Credit and Term Loan Agreement dated as of February 2,
1990 (the "Fourth Amendment"), pursuant to which the Bank extended the date
through which the Bank would make Advances under the Term Loan Commitment to
April 30, 1990.
<PAGE>
H. The Borrower and the Bank have entered into a Fifth
Amendment to Revolving Credit and Term Loan Agreement and First Amendment to
Revolving Note dated as of January 31, 1991 but effective as of December 31,
1990 (the "Fifth Amendment") pursuant to which the Bank extended the date
through which the Bank would make Advances under the Revolving Loan Commitment
from December 31, 1991 to December 31, 1992.
I. The Borrower and the Bank have entered into a Sixth
Amendment to Revolving Credit and Term Loan Agreement and Second Amendment to
Revolving Note dated as of December 2, 1991 (the "Sixth Amendment"), pursuant to
which the Bank extended the date through which the Bank will make Advances under
the Revolving Loan Commitment from December 31, 1992 to December 31, 1993.
J. The Borrower and the Bank have entered into a Seventh
Amendment to Revolving Credit and Term Loan Agreement and Third Amendment to
Revolving Note dated as of December 8, 1992 (the "Seventh Amendment"), pursuant
to which the Bank extended the date through which the Bank will make Advances
under the Revolving Loan Commitment from December 31, 1993 to December 31, 1994.
K. The Borrower and the Bank have entered into an Eighth
Amendment to Revolving Credit and Term Loan Agreement and Fourth Amendment to
Revolving Note dated as of March 31, 1994 (the "Eighth Amendment"), pursuant to
which the Bank extended the date through which the Bank will make Advances under
the Revolving Loan Commitment from December 31, 1994 to December 31, 1995.
L. As of the date hereof, the Term Note has been paid in full
and the outstanding principal balance of the Replacement Revolving Note is
$_______________
M. The Borrower and Airtran Corporation, its parent
corporation, will be executing a restructuring plan pursuant to which, among
other things, certain assets of the Borrower will-be eventually conveyed to a
new corporation and the Borrower's affairs will be governed by a new management
team.
N. The Borrower has requested that the Bank (i) amend certain
financial covenants and (ii) extend the date through which the Bank will make
Advances under the Revolving Loan Commitment from December 31, 1995 to July 31,
1998.
O. The Bank is willing to grant the Borrower's requests subject
to the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the Borrower and the Bank agree as follows:
<PAGE>
1. DEFINITIONS. Terms used in this Amendment which are defined
in the Credit Agreement, as amended, shall have the same meanings as defined
therein, unless otherwise defined herein.
2. EXTEND MATURITY DATE. Section 2.01 of the Credit Agreement,
as amended, is hereby further amended by deleting the date "December 31, 1995"
as it appears in the fourth line of Section 2.01 and by substituting therefor
the date "July 31, 1996".
3. NEW FINANCIAL COVENANT. The following new Section 5.14 is
added to the Credit Agreement, as amended, immediately after Section 5.13:
"Section 5.14 MINIMUM PRE-TAX INCOME. The Borrower shall
achieve, during each fiscal quarter ending on the dates listed below,
Pre-Tax Income of not less than the amount set forth opposite such
dates:
Quarter Ending MINIMUM PRE-TAX INCOME
9/30/95 $4,000,000
12/31/95 $2,100,000
3/31/98 $1,100,000
6/30/96 $2,200,000
9/30/96 $4,000,000
12/31/96 $2,100,000
3/31/97 $1,100,000
For the purposes of this Section 5.14, "Pre-Tax Income" means the sum of
(i) fiscal after-tax net income from -. continuing operations, (ii)
extraordinary, non-cash or nonoperating expense or loss recorded by the
Borrower, and (iii) state and federal income taxes recorded by the
Borrower, DECREASED by (iv) the sum of any extraordinary, non-operating or
non-cash income recorded by the Borrower, each as determined in accordance
with generally accepted accounting principles.
4. NEW EVENT OF DEFAULT. section 7.01 of the Credit Agreement
is amended by adding the following new Subsection (c-l) immediately after
Section 7.01 (c)
"(c-l) An Event of Default as defined in that certain
Letter of Credit and Reimbursement Agreement between the
Borrower and the Bank dated as of August 1, 1990, as amended
from time to time, shall
<PAGE>
occur and shall not be cured or waived within any applicable
grace period:"
5. AMENDMENT TO NOTE. The Replacement Revolving Note, as
amended, is hereby further amended by deleting the date "December 31, 1995" as
it appears in the third line of the first paragraph and by substituting therefor
the date July 31, 1996".
6. CONDITIONS PRECEDENT. This Amendment shall be effective
when the Lender shall have received an executed original hereof, together with
each of the following,. each in substance and form acceptable to the Lender in
its sole discretion:
(a) The Acknowledgment and Agreement of Guarantor set forth at
the end of this Amendment, duly executed by the Guarantor.
(b) A Certificate of the Secretary of the Borrower certifying as
to (i) the resolutions of the board of directors of the Borrower
approving the execution and delivery of this Amendment and the
Reimbursement Agreement Amendment defined below, (ii) the fact that
the Articles of Incorporation and Bylaws of the Borrower, which were
certified and delivered to the Lender pursuant to the Certificate of
the Borrower's Secretary dated as of November 7, 1988 in connection
with the execution and delivery of the Credit Agreement continue in
full force and effect and have not been amended or otherwise modified
except as set forth in the Certificate to be delivered, and (iii)
certifying that the officers and agents of the Borrower who have been
certified to the Lender, pursuant to the Certificate of the
Borrower's Secretary dated as of November 7, 1988, as being
authorized to sign and to act on behalf of the Borrower continue to
be so authorized or -- setting forth the sample signatures of each
of the officers and agents of the Borrower authorized to execute and
deliver this Amendment and all other documents, agreements and
certificates on behalf of the Borrower.
(c) That certain First Amendment to better of Credit and
Reimbursement Agreement of even date herewith by and between the
Borrower and the Bank
(d) Such other matters as the Lender may require.
7. REFERENCES. on the date this Amendment becomes effective,
each reference in the Credit Agreement, as amended, to "the Revolving Note"
shall be deemed a reference to the Replacement Revolving Note as previously
amended and as amended by this Amendment. On the date this Amendment becomes
effective, each reference in the Credit Agreement, as amended, to "this
Agreement" shall be deemed a reference to the Credit Agreement as previously
amended and as amended by this Amendment.
8. NO OTHER CHANGES. Except as amended by the First Amendment,
the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment,
<PAGE>
the Sixth Amendment, the Seventh Amendment, the Eighth Amendment and this
Amendment, the terms and conditions of the Credit Agreement shall remain in all
other respects in full force and effect.
9. Fees and Expenses. The Borrower shall reimburse the Bank
upon demand for all attorneys' fees and expenses incurred by the Bank in
connection with the preparation of this Amendment.
10. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which shall be an original and all of which shall
constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
MESABA AVIATION, INC.
By
Its
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By
Its
<PAGE>
GUARANTOR'S CONSENT
The undersigned hereby consents to the foregoing Amendment and confirms
that its guaranty by Corporation dated November 0, 1989 remains in full force
and effect subject to no defense, counterclaim or offset.
DATED: August 28, 1995 AIRTRAN CORPORATION
By
Its
<PAGE>
TERM SHEET PROPOSAL
FOR THE ACQUISITION OF SAAB 340 AIRCRAFT BY
MESABA AVIATION, INC.
BUYER/SUBLESSEE: Mesaba Aviation, Inc. ("Mesaba")
SELLER: Saab Aircraft of America, Inc. ("SAAI")
SUBLESSOR: Fairbrook Leasing, Inc. ("FLI")
POTENTIAL ASSIGNEE: Northwest Aircraft Inc. ("NAI")
NAI GUARANTOR: Northwest Airlines, Inc. ("NWA")
FIRM AIRCRAFT: Thirty (30) new Saab 340BPLUS aircraft ("New Aircraft") and
twenty (20) used Saab 340A aircraft ("340A Aircraft")
OPTION AIRCRAFT: Ten (10) new Saab 340BPLUS aircraft ("Option New Aircraft"),
and twelve (12) used Saab 340A aircraft ("Option 340A Aircraft")
SUMMARY
SAAI proposes to sell thirty (30) New Aircraft to Mesaba, in six (6)
"Groups" of five (5) aircraft each. Mesaba will also acquire options for ten
(10) Option New Aircraft, in two (2) Groups of five (5) aircraft each. FLI will
provide, and Mesaba will utilize, sublease financing * , Mesaba may elect to
purchase the Aircraft from SAAI for a fixed price, and may, at its option, then
utilize debt financing to be arranged by FLI.)
FLI proposes to sublease twenty (20) 340A Aircraft to Mesaba, subject to
existing subleases. Mesaba will also acquire options for twelve (12) Option
340A Aircraft.
Under certain circumstances, Mesaba may assign to NAI its rights to
purchase, sublease or debt-finance Aircraft.
NEW AIRCRAFT COMMERCIAL TERMS
DOCUMENTATION: The primary agreement is the Saab 340B Aircraft
Acquisition Agreement dated as of March 1, 1996 between
Mesaba and SAAI (the "Acquisition Agreement"), as
supplemented by ten "Exhibits" and four "Letter
Agreements".
SPECIFICATION: Thirty (30) New Aircraft, built to Saab 340B Type
Specification 72PJS0329, Revision D dated August 1995
(Exhibit B), with the optional equipment selected by
Mesaba and listed in Exhibit C, including active noise
system, cold weather kit, leather seat covers,
- ---------------
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
supplementary cabin cooling and heating systems, TCAS II and the Universal
global positioning system ("GPS"). *
DELIVERY SCHEDULE: To be determined, based on the provisions of Annex 1.
DELIVERY LOCATION: Mesaba's facility in either Minneapolis, Minnesota or
Detroit, Michigan, as specified by Mesaba for any
particular New Aircraft or Option New Aircraft. Mesaba
shall indemnify SAAI for any state and local sales and
use taxes. Mesaba shall provide positive space travel
back to Sweden for three (3) crew members who deliver
each Aircraft.
PRICING: The purchase price for each New Aircraft is * . Mesaba
will pay SAAI Advance Payments of * per New Aircraft
upon the signing of this Term Sheet, and an additional
* per New Aircraft upon execution and delivery
of the Acquisition Agreement, for a total of * in Advance
Payments per New Aircraft and an aggregate Advance
Payment for New Aircraft of *.
*
*
- ---------------
* Confidential portions omitted and filed separately with the Commission.
2
<PAGE>
*
*
*
TRAINING: The training programs for pilots and mechanics *
*
- ---------------
* Confidential portions omitted and filed separately with the Commission.
3
<PAGE>
*
TECH REPS: Notwithstanding Section 2.a of Exhibit G, SAAI agrees to
assign and locate one (1) Field Technical Representative
*
*
OPTION NEW
AIRCRAFT: As more fully described in Letter Agreement No. 4, ten
(10) new Saab 340BPLUS aircraft built to the same
specification as the New Aircraft, with the same optional
equipment. The purchase price is *
- ---------------
* Confidential portions omitted and filed separately with the Commission.
4
<PAGE>
*
OPTION TERMS: Mesaba will pay SAAI * Option Fee of * to be paid upon
the signing of this Term Sheet and * upon the execution
and delivery of the Acquisition Agreement, for an
aggregate Option Fee for Option New Aircraft of *.
Mesaba must exercise its option to purchase the Option
New Aircraft on or before December 31, 1998. The first
Option New Aircraft will be delivered in the month that
is nine (9) months after the month following Mesaba's
exercise of its option, with the remaining delivery
schedule to be mutually agreed, but at a rate not to
exceed a total of two (2) Option New Aircraft and Option
340A Aircraft per month. Mesaba must pay SAAI an Advance
Payment of * at the time it exercises its option to
purchase each Option New Aircraft.
NEW AIRCRAFT FINANCING OPTIONS AND TERMS
DOCUMENTATION: The primary agreement is the Financing Agreement for Saab
340A and 340B Aircraft dated as of March 1, 1996 between
Mesaba and FLI (the "Financing Agreement"), which is
supplemented by seven Exhibits, among which are the
agreed forms of lease and sublease for New Aircraft and
Option New Aircraft (each referred to below, for
convenience only, as a "Sublease"). The following is a
summary of selected elements of the Financing Agreement
that apply to New Aircraft and Option New Aircraft:
COMMITMENTS OF
FLI AND MESABA: FLI shall provide, and Mesaba shall utilize the Sublease
financing described more fully in Section 5(a), for all
Groups of New Aircraft and Option New Aircraft, unless it
notifies FLI * that it elects to purchase the Aircraft in
that Group from SAAI as provided in the Acquisition
Agreement *
- ---------------
* Confidential portions omitted and filed separately with the Commission.
5
<PAGE>
DEBT FINANCING: If Mesaba does elect to so purchase a Group, then it may
also require FLI to provide or arrange senior secured
debt financing or leveraged lease debt financing for all
Aircraft in such Group, as more fully described in
Section 5(b). *
TERM OF SUBLEASES: The term of each Sublease will be seventeen (17) years;
at FLI s option such term for any Aircraft may be
increased by the addition of a stub period of up to
three (3) months between its delivery and the
commencement of a permanent Sublease.
BASIC RENT: For New Aircraft, Basic Rent will be * For Option New
Aircraft, Basic Rent shall be *
340A SUBLEASE FINANCING TERMS
DOCUMENTATION: The primary agreement is the Financing Agreement. The
Sublease for each 340A Aircraft and Option 340A Aircraft
shall be in the form of Exhibit D to the Financing
Agreement, subject to changes (as provided in Section
5(a)(v)) required for conformance with the Head Lease in
effect with respect to such Aircraft. The following is a
summary of selected elements of the Financing Agreement
that apply to 340A Aircraft and Option 340A Aircraft:
COMMITMENTS OF
FLI AND MESABA: As more fully described in Sections 3(a) and 4, FLI shall
deliver to Mesaba, and Mesaba shall sublease from FLI,
twenty (20) 340A Aircraft, and Mesaba will pay FLI, upon
the signing of this Term Sheet, * , for a total of * , in
Advance Payments.
SPECIFICATION: As more fully described in Annex 2 hereto (which
supersedes Exhibit C to the draft
- ---------------
* Confidential portions omitted and filed separately with the Commission.
6
<PAGE>
Financing Agreement), the 340A Aircraft will be
configured with 34 seats, forward galley and aft
lavatory, with cold weather kit, leather seat covers,
TCAS II and supplementary cabin heating system. (Section
3(d)). *
DELIVERY SCHEDULE: To be determined, based on the provisions of Annex 1.
DELIVERY LOCATION: At the facility where each Aircraft has been refurbished
or another, mutually agreed location so as to minimize
the tax impact of such delivery. Mesaba shall indemnify
FLI for any state and local sales or use taxes. Mesaba's
pilots shall ferry each Aircraft from the refurbishment
facility to the delivery location and then to Mesaba's
operations base, but FLI will assist Mesaba by providing
pilots for as many as the first three (3) deliveries,
until Mesaba has trained sufficient pilots on the Saab
340 to reasonably accommodate such delivery flights.
TERM OF SUBLEASES: At FLI's option, and depending on the remaining term of
the applicable Head Lease, the term of each Sublease will
be between 72 and 96 months (Section 5(a)(ii)), *
BASIC RENT: *
OPTION 340A
AIRCRAFT: As many as twelve (12) Option 340A Aircraft, offered in
an initial set of five (5) aircraft ("Group A") and a
second set of seven (7) aircraft ("Group B"). The Option
340A Aircraft will have the same specification, Sublease
term and Basic Rent as the 340A Aircraft. The earliest
delivery date for the first Option 340A Aircraft will be
in the month after the scheduled delivery month of *
- ---------------
* Confidential portions omitted and filed separately with the Commission.
7
<PAGE>
The option to sublease either Group must be exercised no
later than December 31, 1998. The option to sublease
Group B cannot be exercised unless Mesaba has also
exercised its option to acquire all of the Option New
Aircraft.
RIGHTS ASSIGNABLE TO NORTHWEST AIRCRAFT AND NORTHWEST AIRLINES
PURCHASE RIGHTS: Mesaba shall have the right to assign to NAI its right to
purchase New Aircraft and Option New Aircraft under the
Acquisition Agreement (as limited by the provisions of
Letter Agreement No. 3, Paragraph 1).
NEW AIRCRAFT
SUBLEASE FINANCING: As more fully described in Section 5(a)(vi) of the
Financing Agreement, on ninety (90) days notice as
provided in Section 5(c), Mesaba may assign to NAI its
right to take delivery of any Group of Aircraft under
Sublease financing, if NWA fully guarantees NAI's
obligations and NAI assumes all of Mesaba's obligations,
*
REVERSE ASSIGNMENT
RIGHT: NAI shall have the one-time right under each Sublease of
a New Aircraft or Option New Aircraft to assign such
Sublease to Mesaba, if Mesaba assumes all of NAI's
obligations. *
NEW AIRCRAFT
DEBT FINANCING: As more fully described in Section 5(b)(iv), on ninety
(90) days notice (as provided in Section 5(c)), Mesaba
may assign to NAI its right to take delivery of any Group
subject to a debt financing described in Section 5(b), if
NWA fully guarantees NAI's obligations and NAI assumes
all of Mesaba's obligations.
340A SUBLEASE
FINANCING: As more fully described in Section 5(a)(vii), Mesaba may
assign all of its 340A Aircraft Subleases and the right
to acquire as yet undelivered 340A Aircraft to NWA in the
event the Airline Services Agreement between Mesaba and
NWA is not renewed before March 31, 1997, if NWA assumes
all of Mesaba's obligations.
- ---------------
* Confidential portions omitted and filed separately with the Commission.
8
<PAGE>
TERMS APPLICABLE TO ALL FINANCINGS
*
SUBORDINATION: As more fully described in Section 5(a)(iv) of the
Financing Agreement, any sublease from FLI to Mesaba, NA
or NWA shall be subject and subordinate to any applicable
Head Lease.
MODIFICATIONS: As more fully described in Section 5(a)(v), Mesaba will
cooperate with FLI in structuring a lease-in-lease-out
transaction for New Aircraft or Option New Aircraft and
in modifying the form of Sublease (Exhibit D to the
Financing Agreement) for 340A Aircraft and Option 340A
Aircraft so the Sublease will not conflict with the Head
Lease in effect with respect to such Aircraft.
ADMINISTRATIVE
QUIET ENJOYMENT: As provided in Section 4(b) of the form of Sublease
(Financing Agreement Exhibit D).
HEAD LEASE
PASSTHROUGH: As described in Section 24 of the form of Sublease
(Exhibit D to the Financing Agreement), FLI will pass
through to Mesaba*
*
- ---------------
* Confidential portions omitted and filed separately with the Commission.
9
<PAGE>
CONDITIONS PRECEDENT AND EFFECT OF THIS TERM SHEET
DOCUMENTATION: 1. The Acquisition Agreement
2. Letter Agreements Nos. 1 through 4
3. The Financing Agreement
*
CONDITIONS
PRECEDENT: None of the above-listed agreements shall be effective
unless and until (1) all such agreements have been signed
by each party thereto and delivered to all respective
counterparties, (2) SAAI shall have received the Advance
Payments * for the New Aircraft and the Option Fee * for
the Option New Aircraft, (3) FLI shall have received the
Advance Payments * for the 340A Aircraft and the Option
Fee * for the Option 340A Aircraft and (4) NWA shall have
approved the transactions contemplated by such final
documentation. In the event that one or more of these
conditions precedent shall not have been either satisfied
or waived by the party to receive such signed document or
payment, then all payments shall be immediately
refundable to Mesaba.
EFFECT OF THIS
TERM SHEET: By signing this Term Sheet, SAAI, FLI and Mesaba evidence
their agreement to negotiate, execute and deliver
definitive documentation in substantially the form and
substance of the 2/18/96 drafts of the above-listed
documents no later than April 15, 1996; provided,
however, that in the event of any conflict between the
terms set forth in this Term Sheet and any such draft,
the terms set forth in this Term Sheet shall prevail.
VALIDITY AND LAW: This Term Sheet is to be governed in all respects by the
laws of the State of New York, including all matters of
construction, validity and performance. It shall not be
effective unless and until (1) it has been signed by and
delivered to each other party, (2) SAAI shall have
received * Advance Payments for the New Aircraft * the
Option Fee for the New Aircraft * , (3) FLI shall have
received the Advance Payments * for the 340A Aircraft *
Option Fee for the Option 340A Aircraft, all on or before
March 7, 1996. It shall be null and void if on or before
March 7, 1996, (1) either FLI or SAAI notifies Mesaba in
writing that the Board of Directors of Saab Aircraft AB
has
- ---------------
* Confidential portions omitted and filed separately with the Commission.
10
<PAGE>
failed to approve the transactions contemplated hereby or (2) Mesaba notifies
both SAAI and FLI that its Board of Directors has failed to approve the
transactions contemplated hereby.
PUBLICITY: All of the information and content of this Term Sheet
(specifically including, without limitation, Basic Rent
provisions) shall remain confidential until all three
parties agree otherwise. SAAI and FLI acknowledge the
importance of confidentiality in light of the status of
Mesaba's parent company, Mesaba Holdings, Inc., as a
publicly-traded company. Mesaba recognizes the
difficulty of such information remaining secret, and
agrees to authorize a press release as soon as possible
after its Board approval of the transaction is obtained.
Mesaba agrees to permit SAAI and FLI to review and
comment in advance any proposed public disclosures
involving information about the transactions contemplated
by this Term Sheet and the Documents listed above.
Signed on March 7, 1996.
Mesaba Aviation, Fairbrook Leasing, Saab Aircraft of
Inc. Inc. America, Inc.
By: /s/ Bryan K. Bedford By: /s/ Henrik Schroder By: /s/ Mark D. Pugliese
-------------------- ------------------- --------------------
Bryan K. Bedford Henrik Schroder Mark D. Pugliese
President and CEO President and CEO Executive Vice President
and General Counsel
By: /s/ Gena H. Laurent By: /s/ Steven M. Wallace
------------------- ---------------------
Gena H. Laurent Steven M. Wallace
Assistant Vice Vice President -
President Product Support
11
<PAGE>
ANNEX 1
DETERMINATION OF DELIVERY SCHEDULE
FOR NEW AIRCRAFT AND 340A AIRCRAFT
The thirty (30) New Aircraft and twenty (20) 340A Aircraft shall be delivered
commencing May 1996 and continuing through May 1998. Subject to the following
constraints, SAAI shall determine the mix of New Aircraft and 340A Aircraft for
each calendar quarter at least three (3) months in advance of each quarter:
1. Two Aircraft will be delivered each month.
2. No more than five (5) New Aircraft will be delivered in 1996.
3. No New Aircraft will be delivered before September 1996.
4. No New Aircraft will be delivered in any July.
5. By the end of 1997, at least seventeen (17) New Aircraft will be delivered.
6. SAAI and Mesaba will cooperate with each other, particularly during the
early part of the delivery cycle, in establishing delivery dates and
accommodating each other's reasonable requests for flexibility.
<PAGE>
ANNEX 2
SAAB 340A CONFIGURATION
Interior Panel Refurbishment
New Carpeting
Leather Seat Covers
New Exterior Paint
Interchangeability of Propellers
WEU to Mod. 5
EFIS Fan SB
ACT Inlet Connectors
Lucas Brushes for Generators
C-Check and Structural Inspections
Cold Weather Kit
Supplementary Heating
TCAS II
34 Passenger Seats
Forward Galley
Aft Lavatory
<PAGE>
EXHIBIT 10V
[LETTERHEAD]
March 7, 1996
Mesaba Aviation, Inc.
7501 26th Avenue South
Minneapolis, MN 55450
Attention: Bryan K. Bedford
President and CEO
Copy: Northwest Airlines, Inc.
5101 Northwest Drive
Department A4010
St. Paul, MN 55111-3034
Attention: Joseph E. Francht
Senior Vice President & Treasurer
Copy: Northwest Aircraft, Inc.
5101 Northwest Drive
Department A5000
St. Paul, MN 55111-3034
Attention: Daniel B. Matthews
Vice President
Re: Saab 340BPLUS Acquisition Financing
-----------------------------------
Gentlemen:
Saab Aircraft Finance Corporation ("SAFC") proposes to sublease thirty (30) new
Saab 340BPLUS aircraft ("Aircraft") for initial delivery to Mesaba Aviation,
Inc., a Northwest Airlink company, on the following basis:
AIRCRAFT GROUPINGS
The Aircraft will be grouped into six (6) separate groups containing five (5)
Aircraft (each a "Group"), with all Aircraft in the first Group to be delivered
before December 31, 1996. The remaining Groups shall contain on the average 1.5
aircraft deliveries per month, excluding July.
<PAGE>
AIRCRAFT SUBLEASE
Subject to Mesaba's not exercising any of the below stated options *, SAFC (or
an affiliate thereof) will enter into a sublease agreement ("sublease") with
either Mesaba Aviation, Inc. ("Mesaba") or Northwest Aircraft, Inc. ("Northwest
Aircraft"), (either referred to as "Sublessee") such determination to be made by
Mesaba and approved by Northwest Airlines, Inc. ("NWA") by prior written notice
to be given to SAFC no later than 60 days prior to the commencement of each
sublease. If no determination has been received prior to the sixty (60) day
period, then the sublessee shall be construed to be Mesaba. * At any time during
the sublease, Northwest Aircraft shall have (in addition to any rights to sub-
sublease the Aircraft as provided in the form of Sublease) a one-time option to
assign its position as sublessee to Mesaba, * Subleases to either Sublessee
shall contain terms and conditions typically available to NWA in the marketplace
for U.S. leveraged leases as discussed with Capstar Partners. SAFC shall have
the right to lease Aircraft directly to either Mesaba or Northwest Aircraft, as
the case may be for an interim period of up to three (3) months, after which the
17-year sublease term shall commence. Each sublease shall be subject and
subordinate to the head lease arranged by SAFC *
GROUP DEBT FINANCING OPTIONS
As an alternative to the Sublease, at Mesaba's sole option (to be approved by
NWA), subject to Mesaba having exercised such option * prior to the scheduled
delivery month of the first Aircraft in each Group, SAFC shall arrange one of
the below specified debt financing structures by either having an SAFC affiliate
provide the debt financing or arrange to have a third party provide the debt
financing. In either case, the terms and conditions of such debt financing shall
be of generally acceptable market terms and conditions at the time of the
funding for transactions of similar kind and nature, and the documentation for
such financings shall contain terms and conditions typically available to NWA in
the U.S. marketplace for similar financings as discussed with Capstar Partners.
1. Senior secured debt financing for the purchase by Mesaba or Northwest
Aircraft of the Aircraft in an amount not to exceed * , for a maximum 10 year
term, with semi-annual payments in arrears, * . If the debt is extended to
Mesaba the interest
- ---------------
* Confidential portions omitted and filed separately with the Commission.
2
<PAGE>
rate on the purchase debt for each Aircraft, for which the option has been
exercised within such Group, shall be * , and a guarantee fee paid to SAFC equal
to * . If the debt is extended to Northwest Aircraft, Inc. with a payment and
performance guaranty from NWA, the interest rate on the purchase debt for each
Aircraft, for which the option has been exercised within such Group, shall be *,
based solely on the credit worthiness of the Northwest Airlines, Inc. credit and
a senior secured collateral position in the Aircraft * ; PROVIDED, however that
such interest rate shall in no event exceed the interest rate available to
Mesaba hereunder, or
2. Senior secured non-recourse debt financing into a third party leveraged
lease in an amount not to exceed * , for a maximum 17 year term, with semi-
annual payments in arrears, with no balloon at the end. If the debt is extended
to a lessor for a lease to Mesaba the interest rate on the debt for each
Aircraft, for which the option has been exercised within such Group, shall be *,
and a guarantee fee paid to SAFC equal * . If the debt is extended to a lessor
for a lease to Northwest Aircraft, with a payment and performance guaranty from
NWA, the interest rate on the debt for each Aircraft for which the option has
been exercised within such group, shall be * , based solely on the credit
worthiness of the NWA credit and a senior secured collateral position in the
Aircraft, * ; PROVIDED, however that such interest rate shall in no event exceed
the interest rate available to Mesaba hereunder.
PURCHASE OPTION
Subject to Mesaba's having exercised the option * prior to the scheduled
delivery month of the first Aircraft in each Group, to the extent that Mesaba or
Northwest Aircraft have not exercised an option to use the Sublease or any of
the Debt Financing Options, SAFC will cause SAAI to sell the Aircraft to either
Mesaba or Northwest Aircraft, as determined in the written option notice, for a
purchase price of * due upon delivery of each Aircraft.
In addition to other commitments made to Mesaba including, without limitation,
the lease or sublease of used Saab 340A aircraft, which SAFC shall also make
available to NWA on the same terms and conditions, such determination to be
agreed upon between Mesaba and NWA, this letter sets forth SAFC's commitment
with respect to thirty (30) new Saab 340B Aircraft and the general understanding
as to the sublease financing, debt financing and purchase options available to
Mesaba or NWA. It is understood between the parties that any commitment on the
part of NWA, Northwest Aircraft, Mesaba or SAFC is subject to Finance Committee
and board approval of NWA, board approval of Mesaba, credit committee approval
of SAFC by no later than March 7, 1996 as well as negotiation and execution of
definitive aircraft purchase, financing and lease documentation to be executed
by no later than April 15, 1996. Notwithstanding anything to the contrary set
forth herein, no commitment contained herein shall be binding on NWA, Northwest
- ---------------
* Confidential portions omitted and filed separately with the Commission.
3
<PAGE>
Aircraft or Mesaba until approval of this specific transaction has been obtained
from NWA following the date hereof.
If acceptable to Mesaba, NWA and Northwest Aircraft, please evidence agreement
or acknowledgment by signing below and returning an originally executed copy,
otherwise this offer will expire on March 8, 1996.
Saab Aircraft Finance Corporation
By: /s/ Henrik Schroder
----------------------------
Henrik Schroder
President
By: /s/ Gena H. Laurent
----------------------------
Gena H. Laurent
Assistant Vice President
Agreed to and Accepted by:
Mesaba Aviation, Inc.
By: /s/ Bryan K. Bedford
----------------------------
Bryan K. Bedforid
President and CEO
Acknowledged by:
Northwest Airlines, Inc.
By: /s/ Joseph E. Francht, Jr.
----------------------------
Name: Joseph E. Francht, Jr.
Title: Senior Vice President
Finance and Treasurer
Acknowledged by:
Northwest Aircraft, Inc.
By: /s/ Daniel B. Matthews
----------------------------
Name: Daniel B. Matthews
Title: Vice President
4
<PAGE>
April 18, 1996
Mr. Bryan K. Bedford
President and CEO
Mesaba Airlines
7501 26th Avenue South
Minneapolis, MN
Dear Bryan:
This Side Letter to the Airline Services Agreement ("Agreement") dated September
15, 1988, as amended, between Mesaba Aviation, Inc. and Northwest Airlines,
Inc., sets forth the revised compensation methodology to be utilized during the
period January 1, 1996 through March 31, 1997 ("Interim Period"). Except as is
expressly discussed below, all other terms and conditions of the Agreement shall
remain unchanged.
COST PER ASM TARGET LEVELS
Mesaba agrees to achieve systemwide Cost per ASM levels consistent with the
following schedule:
CALENDAR QUARTER
- --------------------------------------------------------------------------------
1Q96 2Q96 3Q96 4Q96 1Q97
--------- --------- --------- --------- ---------
Cost per ASM [ * ] [ * ] [ * ] [ * ] [ * ]
Northwest shall not be obligated to make any ASM payments in excess of the Cost
per ASM levels set forth above ("ASM Cap Rate"). [ * ]
It is understood by Mesaba and Northwest that the ASM Cap Rate includes [ *
] of additional annual Dash 8 expenses (Exhibit A) transferred to Mesaba, which
were previously paid for directly by Northwest, and Mesaba hereby agrees that it
is responsible for payment of such costs. [ * ]
REDUCED COST SHARING
To the extent that Mesaba is able to cut costs to a level below the quarterly
ASM Cap Rate, Northwest and Mesaba shall share such savings equally until the
actual system Cost per ASM reaches [ * ], below which Mesaba shall retain
all savings. The calculation of actual cost per ASM versus the ASM Cap Rate
shall be reconciled quarterly, and shall be settled on the first wire transfer
date after such reconciliation.
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
PER PASSENGER FEES
Mesaba shall receive [ * ] per passenger for all revenue passengers which fly
on Mesaba flights. A passenger flying on a one-stop flight into the hub city
shall be treated as a single passenger for calculating the per passenger fees
(i.e. this passenger does not get counted for each segment).
PERFORMANCE BONUSES
The Performance Bonus calculations shall be based upon a controllable completion
factor goal of [ * ] and a controllable on-time performance goal of [ * ]
(arrival within [ * ] minutes). Mesaba shall receive a bonus of [ * ] per
passenger, for all passengers if the goals are achieved. Mesaba shall pay
penalties in accordance with Section JP-4.5.C of the Agreement for completion
factor and on-time shortfalls.
Sections JP-4.5.A (Northwest Contribution Margin Bonus) and JP-4.5.B (Cost per
ASM target range) of the Agreement shall no longer apply.
FUEL ADJUSTMENT
Effective January 1, 1996 and throughout the term of this agreement, Mesaba
shall submit to Northwest a monthly reconciliation of its cost per gallon of
into-plane aircraft fuel. Northwest shall reimburse Mesaba for all into-plane
fuel costs incurred by Mesaba in excess of [ * ] and Mesaba will reimburse
Northwest (through a set-off from revenue wire transfers to Mesaba) for all
into-plane fuel costs of less than [ * ] based on actual monthly usage.
Mesaba agrees to pay Northwest a fee of [ * ]/month for services related to
fuel administration provided by Northwest during the term of this agreement.
[ * ]
[ * ]
SCHEDULING
Northwest agrees to use all commercially reasonable efforts to identify and
implement Mesaba growth opportunities in 1996. Northwest also agrees to a
conduct a quarterly schedule coordination meeting.
Except as expressly set forth herein, the Agreement shall remain in full force
and effect. All capitalized terms not otherwise defined herein shall have the
meaning set forth in the Agreement.
This Side Letter shall in all respects be subject to the terms and conditions of
the Agreement except that in the event of an inconsistency between the Agreement
and this Side Letter, the terms and conditions of this Side Letter shall
prevail.
Accepted and Agreed to this 26 day of April 1996.
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
/s/Neal Cohen /s/Bryan K. Bedford
- ------------------------------ ------------------------------
Neal Cohen Bryan K. Bedford
Vice President President and CEO
Northwest Airlines, Inc. Mesaba Airlines, Inc.
<PAGE>
EXHIBIT 10X
[Northwest Airlines Letterhead]
June 28, 1996
Mr. Bryan Bedford
President/CEO
Mesaba Aviation
7501 26th Avenue South
Minneapolis, Mn 55450
Dear Bryan:
Northwest and Mesaba hereby agree to amend section 11.01 of the Airline
Services Agreement dated September 15, 1988, as amended, so that the new
section 11.01 will read as follows:
"Section 11.01 TERM. This agreement shall commence on and shall be effective
as of December 10, 1988 (the "Effective Date") and unless earlier terminated
as provided herein, shall continue until March 31, 1997. Thereafter, their
agreement shall continue in force indefinitely, except that at any time after
March 31, 1996 either party may terminate this agreement upon no less than 8
months prior written notice to the other party"
Accepted and agreed this 28th day of June 1996.
/s/ Neal Cohen /s/ Bryan K. Bedford
- ----------------------------- ---------------------------
Neal Cohen Bryan Bedford
Vice President Market Planning President/CEO
Northwest Airlines Mesaba Aviation
<PAGE>
EXHIBIT 11
MESABA HOLDINGS, INC. AND SUBSIDIARY
Statement Regarding Computation of Per Share Earnings
For the Years Ended March 31
(In Thousands, Expect Per Share Amounts)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Primary earnings per share:
Weighted average number of issued shares outstanding 11,333 8,509 7,653
Computed shares outstanding under the Company's stock option plan
utilizing the treasury stock method 321 80 278
Computed shares outstanding under warrants issued utilizing the
treasury stock method - 524 1,127
----------- ----------- -----------
Shares outstanding used to compute primary earnings per share 11,654 9,113 9,058
----------- ----------- -----------
----------- ----------- -----------
Net income $56,275 $2,606 $3,663
----------- ----------- -----------
----------- ----------- -----------
Primary earnings per share $ 4.83 $ .29 $ .40
----------- ----------- -----------
----------- ----------- -----------
Fully diluted earnings per share:
Weighted average number of shares used for primary earnings per
share 11,654 9,113 9,058
Additional shares outstanding utilizing period-end market value
under the treasury stock method 35 - 11
----------- ----------- -----------
Shares outstanding used to compute fully diluted earnings per share 11,689 9,113 9,069
----------- ----------- -----------
----------- ----------- -----------
Net income $56,275 $2,606 $3,663
----------- ----------- -----------
----------- ----------- -----------
Fully diluted earnings per share $ 4.81 $ .29 $ .40
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE: All amounts have been retroactively restated for the April 1992 two-for-
one stock split.
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Mesaba Aviation, Inc.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statements File Nos. 33-89930, 33-62386, 33-42757, 33-42759 and 33-
19528.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
May 28, 1996
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings, Inc. hereby
constitutes and appoints Bryan K. Bedford and John S. Fredericksen, or either of
them, with power to act one without the other, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his stead, in any and all capacities to sign the Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1996, pursuant to the requirements
of Section 13 of the Securities Exchange Act of 1934, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing necessary or advisable to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: June 26, 1996
Signed: /s/ Donald E. Benson
-------------------------------------
Donald E. Benson
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings, Inc. hereby
constitutes and appoints Bryan K. Bedford and John S. Fredericksen, or either of
them, with power to act one without the other, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his stead, in any and all capacities to sign the Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1996, pursuant to the requirements
of Section 13 of the Securities Exchange Act of 1934, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing necessary or advisable to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: June 26, 1996
Signed: /s/ Christopher E. Clouser
-------------------------------------
Christopher E. Clouser
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings, Inc. hereby
constitutes and appoints Bryan K. Bedford and John S. Fredericksen, or either of
them, with power to act one without the other, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his stead, in any and all capacities to sign the Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1996, pursuant to the requirements
of Section 13 of the Securities Exchange Act of 1934, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing necessary or advisable to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: June 28, 1996
Signed: /s/ Richard B. Hirst
-------------------------------------
Richard B. Hirst
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings, Inc. hereby
constitutes and appoints Bryan K. Bedford and John S. Fredericksen, or either of
them, with power to act one without the other, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his stead, in any and all capacities to sign the Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1996, pursuant to the requirements
of Section 13 of the Securities Exchange Act of 1934, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing necessary or advisable to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: June 26, 1996
Signed: /s/ Carl R. Pohlad
-------------------------------------
Carl R. Pohlad
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings, Inc. hereby
constitutes and appoints Bryan K. Bedford and John S. Fredericksen, or either of
them, with power to act one without the other, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his stead, in any and all capacities to sign the Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1996, pursuant to the requirements
of Section 13 of the Securities Exchange Act of 1934, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing necessary or advisable to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: June 26, 1996
Signed: /s/ Robert C. Pohlad
-------------------------------------
Robert C. Pohlad
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings, Inc. hereby
constitutes and appoints Bryan K. Bedford and John S. Fredericksen, or either of
them, with power to act one without the other, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his stead, in any and all capacities to sign the Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1996, pursuant to the requirements
of Section 13 of the Securities Exchange Act of 1934, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing necessary or advisable to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: June 27, 1996
Signed: /s/ Donald A. Washburn
-------------------------------------
Donald A. Washburn
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings, Inc. hereby
constitutes and appoints Bryan K. Bedford and John S. Fredericksen, or either of
them, with power to act one without the other, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his stead, in any and all capacities to sign the Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1996, pursuant to the requirements
of Section 13 of the Securities Exchange Act of 1934, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing necessary or advisable to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: June 26, 1996
Signed: /s/ Raymond W. Zehr, Jr.
-------------------------------------
Raymond W. Zehr, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> MAR-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 29,428
<SECURITIES> 0
<RECEIVABLES> 9,254
<ALLOWANCES> 0
<INVENTORY> 1,666
<CURRENT-ASSETS> 44,465
<PP&E> 29,230
<DEPRECIATION> 16,842
<TOTAL-ASSETS> 58,204
<CURRENT-LIABILITIES> 17,323
<BONDS> 5,654
0
0
<COMMON> 127
<OTHER-SE> 39,822
<TOTAL-LIABILITY-AND-EQUITY> 58,204
<SALES> 170,455
<TOTAL-REVENUES> 170,455
<CGS> 158,148
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,441
<INCOME-PRETAX> 61,930
<INCOME-TAX> 5,655
<INCOME-CONTINUING> 56,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,275
<EPS-PRIMARY> 4.83
<EPS-DILUTED> 4.81
</TABLE>
