MESABA HOLDINGS INC, 10-K405, 1998-06-29

MESABA HOLDINGS INC
10-K405, 1998-06-29
AIR TRANSPORTATION, SCHEDULED

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UNITED STATES
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

For the fiscal year ended March 31, 1998

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 8, 1998 was approximately $404,879,000.

As of June 8, 1998, there were 19,625,725 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.

DocumentIncorporated Part of Form 10-K
-------------------- -----------------

Proxy Statement for 1998 Annual Meeting of Shareholders Part III

<PAGE>

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 a material change in the Company's
relationship with Northwest Airlines; reductions or interuptions in
Northwest Airlines' air service; changes in regulations affecting the
Company, including DOT and FAA regulations; the acquisition and phase-in
of new aircraft; downturns in economic activity; seasonal factors; and
labor relationships, including work stoppages and the outcome of ongoing
contract negotiations between the Company and the Aircraft Mechanics
Fraternal Association, the mechanics union.

<PAGE>

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 91 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, Colorado, Montana and the Provinces of Ontario,
Saskatchewan and Quebec 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.

In March 1996, Mesaba entered into an agreement with Saab Aircraft of
America, Inc. ("Saab") for the acquisition of 30 new Saab 340BPlus aircraft
and 20 used Saab 340A aircraft. As of March 31, 1998, all of the aircraft
covered by this agreement had been delivered. The Company also exercised
its option agreement for 19 additional new Saab 340BPlus aircraft and 3
additional used Saab 340A aircraft. As of May 31, 1998, three Saab 340BPlus
and one Saab 340A aircraft had been delivered. The remaining aircraft are
expected to be phased into service over the next nine months to replace
Mesaba's remaining fleet of 13 deHavilland Dash 8 aircraft.

NORTHWEST AIRLINK AGREEMENT

Effective July 1, 1997, Mesaba entered into an Airline Services
Agreement (the "Airlink Agreement") with Northwest. The agreement includes
service to and from Northwest's hub airport at Minneapolis/St. Paul,
Minnesota and Detroit, Michigan. The agreement grants all Airlink jet-prop
flying out of Northwest's Minneapolis/St. Paul and Detroit hubs to Mesaba
effective August 1, 1997. As consideration for the additional flying, the
Company issued a warrant to Northwest for the purchase of 1,320,000 shares of
the Company's common stock at an exercise price of $9.417. The warrant
expires July 1, 2007. The Airlink Agreement provides for exclusive rights to
designated service areas and extends through June 30, 2007. During the year
ended March 31, 1998, approximately 79% of all of Mesaba's passengers
connected 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

<PAGE>

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, rather than at the more remote commuter air terminals. The
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.

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.

NORTHWEST JET AGREEMENT

In October 1996, Mesaba signed an agreement with Northwest to fly 12
Avro RJ85 ("RJ85) regional jets under a new Regional Jet Services Agreement
("Jet Agreement"). Mesaba will lease the aircraft from Northwest, which
ordered 12 aircraft from Aero International (Regional). As of June 1998,
Mesaba had taken delivery of all of the RJ85 aircraft. As additional
consideration for the regional jet opportunity, the Company issued a
warrant to Northwest that allows Northwest to purchase up to 922,500
shares of the Company's common stock. The warrant became exercisable with
respect to 1/12 of the shares with each delivery of the 12 RJ85 aircraft
at an exercise price of $7.25.

In April 1998, Mesaba signed an amendment to the Jet Agreement providing
for the delivery of six additional RJ85 aircraft. Mesaba will begin taking
delivery of the aircraft at a rate of approximately one aircraft per month
beginning in June 1998. As consideration for the additional jets, the Company
issued a warrant to Northwest for the purchase of 474,192 shares of the
Company's common stock at an exercise price of $21.25 per share. The warrant
expires on October 25, 2006. On June 2, 1998, Mesaba signed an agreement
with Northwest to fly 18 additional RJ85 aircraft. As consideration for the
additional jets, the Company issued a warrant to Northwest for the purchase
of 1,435,230 shares of the Company's common stock at an exercise price of
$21.25 per share. The warrant expires on October 25, 2006.

<PAGE>

ROUTE SYSTEM

The following tables set forth certain information with respect to
Mesaba's scheduled route system for June 1998.

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 21
Brainerd, MN 113 February 1, 1981 42
Pierre, SD 350 December 15, 1983 21
Sioux Falls, SD 197 December 15, 1983 20
Bemidji, MN 199 December 1, 1984 42
Thief River Falls, MN 261 May 15, 1985 21
Aberdeen, SD 257 December 15, 1985 28
Des Moines, IA 232 June 1, 1986 39
Wausau, WI 175 June 15, 1986 53
Lincoln, NE 332 October 1, 1986 27
Grand Forks, ND 284 October 1, 1986 26
Watertown, SD 193 October 1, 1986 27
Fargo, ND 223 January 15, 1987 14
Omaha, NE 282 June 1, 1987 7
Moline, IL 274 June 10, 1988 33
Houghton/Hancock, MI 277 February 22, 1989 27
Marquette, MI 296 February 22, 1989 27
LaCrosse, WI 120 January 31, 1991 47
Bloomington, IL 374 September 15, 1992 14
Champaign, IL 419 January 31, 1993 7
Thunder Bay, Ontario 304 March 16, 1993 20
St. Cloud, MN 67 July 1, 1993 37
Escanaba, MI 304 August 16, 1993 14
Ely, MN 213 May 26, 1995 8
Bismarck, ND 386 September 1, 1995 6
Kalamazoo, MI 426 November 1, 1995 13
Rochester, MN 76 April 1, 1996 27
Kenora, Ontario 343 May 22, 1997 8
Green Bay, WI 252 June 6, 1997 7
Cincinnati, OH 596 June 6, 1997 7
Traverse City, MI 375 June 6, 1997 14
Waterloo, IA 166 August 1, 1997 39
Mason City, IA 120 August 1, 1997 39
Fort Dodge, IA 168 August 1, 1997 27
Sioux City, IA 234 August 1, 1997 46
Hibbing, MN 174 August 1, 1997 34
Duluth, MN 144 August 1, 1997 35
Rhinelander, WI 190 August 1, 1997 42
Eau Claire, WI 85 August 1, 1997 39
Dubuque, IA 212 August 1, 1997 26

<PAGE>

Peoria, IL 342 August 1, 1997 26
Rockford, IL 278 August 1, 1997 18
Appleton, WI 236 August 1, 1997 40
International Falls, MN 254 August 1, 1997 42
Cedar Rapids, IA 221 July 1, 1997 40
White Plains, NY 1,021 March 1, 1998 7
Saginaw, MI 463 May 1, 1998 6
Pellston, MI 414 June 1, 1997 29
Aspen, CO 802 December 19, 1997 7
Steamboat Springs, CO 774 December 19, 1997 *
Bozeman, MT 874 June19,1998 1
Kalispell, MT 1,025 June19,1998 1
Regina, Saskatchewan 619 October 6, 1997 14

* Seasonal service from December to April

Number of
Nonstop air Date roundtrips
mileage from airline from
Detroit service Detroit
City Airport commenced per week

Detroit, MI --- December 10, 1988 ---
Erie, PA 163 December 10, 1988 35
Akron/Canton, OH 134 December 10, 1988 32
Dayton, OH 166 December 10, 1988 26
Flint, MI 56 January 8, 1989 39
Traverse City, MI 207 January 8, 1989 34
Pellston, MI 242 January 8, 1989 46
Wausau, WI 363 January 8, 1989 33
Houghton/Hancock, MI 425 February 22, 1989 21
Marquette, MI 364 February 22, 1989 21
Toledo, OH 49 April 2, 1989 46
Muskegon, MI 161 October 11, 1989 35
Columbus, OH 155 August 1, 1990 20
Kalamazoo, MI 113 September 6, 1990 26
Cincinnati, OH 229 September 6, 1990 33
Lansing, MI 74 November 14, 1990 20
Youngstown, OH 153 May 1, 1991 27
Fort Wayne, IN 128 June 1, 1991 27
Lexington, KY 296 June 10, 1991 33
Charleston, WV 281 July 8, 1991 33
London, Ontario 125 September 5, 1991 25
Binghamton, NY 378 July 1, 1992 27
Roanoke, VA 382 August 1, 1992 33
Lafayette, IN 224 September 9, 1992 20
Bloomington, IL 314 September 15, 1992 28
South Bend, IN 157 November 16, 1992 27
Louisville, KY 306 June 1, 1993 6
Escanaba, MI 305 August 16, 1993 21
Champaign, IL 298 September 9, 1993 28
Evansville, IN 364 October 1, 1993 26
Knoxville, TN 443 October 1, 1993 7
State College, PA 300 January 31, 1994 27
Saginaw, MI 98 June 1, 1995 6

<PAGE>

Benton Harbor, MI 158 June 20, 1995 28
Harrisburg, PA 370 December 1, 1994 7
Ottawa, Ontario 439 May 1, 1995 25
Elmira, NY 331 November 15, 1995 25
Allentown, PA 424 December 15, 1995 15
Cleveland, OH 95 December 15, 1995 23
Buffalo, NY 240 July 1, 1996 8
Rochester, NY 296 September 10, 1996 6
Appleton, WI 297 October 1, 1996 27
Rockford, IL 295 October 1, 1996 24
Pittsburgh, PA 201 December 18, 1996 8
Owensboro, KY 369 June 1, 1997 6
Des Moines, IA 534 June 6, 1997 7
Green Bay, WI 288 June 6, 1997 1
Peoria, IL 346 August 1, 1997 12
Rhinelander, WI 385 August 1, 1997 21
Montreal, Quebec 529 November 6, 1997 8
White Plains, NY 505 March 1, 1998 26

From time to time Mesaba reviews the feasibility of expanding the
frequency of its service to airports currently being served, as well as
initiating passenger service to additional cities generally within its
service area. Mesaba works closely with Northwest to coordinate flight
schedules and to facilitate connections between Mesaba and Northwest. See
"Business - Northwest Airlink Agreement."

AIRCRAFT

The following table sets forth certain information as to Mesaba's
passenger aircraft fleet as of June 1, 1998:

Approximate Approximate
single average
flight cruising
Type of Number of Seating range speed
aircraft aircraft capacity (miles) (M.P.H.)
- ------------------ ---------- ----------- ----------- -----------
Avro RJ85 12 69 1,400 410
Saab 340 61 30/34 500 300
deHavilland Dash 8 13 37 500 285

Mesaba leases its Avro RJ85 aircraft from Northwest under operating
leases with terms of up to 10 years. The Jet Agreement allows Mesaba to
return aircraft to Northwest upon the occurrence of certain events. The Avro
RJ85 aircraft are fast, pressurized jet airplanes with galleys, dual class
cabin, standup headroom, lavatories, ACARS, radar, ground proximity warning,
traffic collision avoidance and de-icing systems.

Mesaba leases all of its Saab 340 aircraft, either directly from
aircraft leasing companies or through sub-leases with Northwest under
operating leases with terms of up to 16 years. The Airlink Agreement allows
Mesaba to return aircraft to Northwest upon the occurrence of certain
events. The Saab 340 aircraft are fast, fuel efficient, pressurized jet-prop
airplanes with galleys, standup headroom, lavatories, radar, global
positioning, ground proximity warning, traffic collision avoidance and
de-icing systems.

Mesaba sub-leases its deHavilland Dash 8 aircraft from Northwest 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 jet-prop airplanes with galleys, standup
headroom, lavatories, radar, ground proximity warning, traffic collision
avoidance and de-icing systems.

<PAGE>

All of Mesaba's aircraft comply fully with all Federal Aviation
Regulations issued by the Federal Aviation Administration ("FAA").

As of June 1998, Mesaba's existing fleet of Avro RJ85, Saab 340 and
Dash 8 aircraft had remaining lease terms of two months to 16 years and
aggregate monthly lease payments of approximately $5,000,000. As of

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 directly with other
regional airlines on some of the routes it serves. Mesaba also faces
competition from regional carriers offering service to alternative hubs
for connecting flights. 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 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,
cost structure, 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 10.1% of total operating costs for the year ended
March 31, 1998, 10.7% the year ended March 31, 1996, and 11.3% for the year
ended March 31, 1996.

The Company has arrangements with Northwest and nine 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 Airlink Agreement protect Mesaba from future increases in
aviation fuel prices.

Fares
- -----

Mesaba derives its passenger revenues by selling its seat capacity to
Northwest at predetermined rates. 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 Avro RJ85, Saab 340 or dehavilland Dash
8 aircraft with respect to such service. Fares vary primarily in relation to
the length of the flight and other factors.

<PAGE>

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 Certificate" from the
FAA, under Part 119 of the Federal Aviation Regulation, permitting it to
conduct flight operations in compliance with Part 121 of the
Federal Aviation Regulations. The Part 121 regulations are the same
regulatory requirements applied to major airlines. 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 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 routine maintenance to its aircraft and
engines. Major overhauls on its airframes, engines, and other rotable parts
on Dash 8, Saab 340 and RJ85 aircraft are performed internally or at FAA
authorized facilities.

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 37 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

<PAGE>

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 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, 1998, Mesaba employed 2,634 persons, of whom 775 were
pilots, 245 were management, administrative and clerical personnel, 270 were
aircraft maintenance personnel, 926 were station managers, station agents and
line services personnel, and 418 were flight attendants. Approximately 600
of Mesaba's employees are part-time.

Mesaba's pilots are represented by the Air Line Pilots Association
("ALPA"). Mesaba concluded negotiations with ALPA and reached a new
collective bargaining agreement effective June 1, 1996, with a term of four
years. In October, 1996, Mesaba and ALPA reached agreement on a modification
of the collective bargaining agreement which, in addition to other
enhancements, increased the term to six years.

Mesaba's mechanics are represented by the Aircraft Mechanics Fraternal
Association ("AMFA"). Formal negotiations between Mesaba and AMFA are
currently in progress. At the request of AMFA, a mediator from the National
Mediation Board is assisting in the negotiations 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.

On May 4, 1998 the National Mediation Board informed Mesaba that an
election involving fleet and passenger service employees will be held in July
1998 to determine whether they will gain union representation. If the
employees vote in favor of union representation, it is likely that the
International Association of Machinists and Aerospace Workers would be
their representative.

Mesaba has had no work stoppages and management, in general, believes
that its relations with its employees are good.

<PAGE>

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.

<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information regarding the
executive officers of the Company and its subsidiary, Mesaba Aviation, Inc.

Officer
Name Age Position since
- ------------------- ---- --------------------------------- -------

Carl R. Pohlad 82 Chairman of the Company and 1995
Mesaba

Bryan K. Bedford 36 President and Chief Executive 1995
Officer of the Company and
Mesaba

John S. Fredericksen 49 Vice President, Administration, 1992
General Counsel and Secretary
of the Company Mesaba

Robert H. Cooper 38 Vice President and Chief 1997
Financial Officer and Treasurer
of the Comapny and Mesaba

F. Darrell Richardson 51 Vice President and Chief 1995
Operating Officer of Mesaba

Scott L. Durgin 36 Vice President, Customer Service 1996
of Mesaba

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. 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.

Robert H. Cooper was named Vice President, Chief Financial Officer
and Treasurer of the Company and Mesaba in July 1997. Mr. Cooper joined
the Company as Director of Finance in October 1995. Mr. Cooper served as
Corporate Controller for Atlantic North America from August 1994 to
October 1995. He served as Corporate Controller of Phoenix Airline
Services, Inc. from September 1991 until July 1994. From 1984 until
September 1991, Mr. Cooper held various positions, the last being
Assistant Corporate Controller, for Murata Electronics Corporation.

<PAGE>

F. Darrell Richardson joined the Mesaba 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 Executive 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.

Scott L. Durgin joined the Mesaba as Vice President, Customer Service
in December 1996. Mr. Durgin was Vice President, Customer Service of
Business Express Airlines from May 1995 until joining the Company. He served
as a Regional Director for Express I Airlines from December 1991 to May 1995,
and held various positions, the last being Director of Stations, at Pilgrim
Airlines from 1983 until December 1991.

<PAGE>

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, 1998.

<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, 1998. Quotations for such periods
are as reported by NASDAQ for National Market issues. All prices have been
adjusted to reflect the Company's three-for-two stock split effective April 30,
1998.

Stock Quotations
- ----------------

($) High ($) Low
-------- -------
Fiscal 1997
First quarter 8.68 6.67
Second quarter 8.00 5.92
Third quarter 10.25 6.50
Fourth quarter 10.75 7.50

Fiscal 1998
First quarter 10.18 7.50
Second quarter 14.75 8.83
Third quarter 17.33 13.42
Fourth quarter 21.00 15.83

On June 8, 1998, the number of holders of record of Common Stock was 917.

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.

<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,
--------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(amounts in thousands, except share and per share data)
Statement of Operations Data:

Operating revenues $277,225 $185,701 $170,455 $145,900 $129,582
Operating expenses $246,856 $166,118 $158,148 $141,541 $122,983
-------- -------- -------- -------- --------
Operating income $ 30,369 $ 19,583 $ 12,307 $ 4,359 $ 6,599
======== ======== ======== ======== ========
Net income $ 19,804 $ 11,986 $ 6,972* $ 2,606 $ 3,663
======== ======== ======== ======== ========
Net income per shar - diluted $ 0.95 $ 0.62 $ 0.40* $ 0.19 $ 0.27
======== ======== ======== ======== ========
Weighted Average number of
shares outstanding and
common share equivalents
- diluted 20,846 19,310 17,534 13,670 13,604

*Excludes non-taxable gain of $49,303 from distribution ofsubsidiary

Year Ended March 31,

1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(dollars in thousands)
Balance Sheet Data:

Current assets 94,201 71,201 44,465 46,154 42,942
Net property and eqipment 32,097 19,772 12,388 14,931 13,863
Other noncurrent assets 10,893 13,593 1,351 5,799 3,258
-------- -------- -------- -------- --------
Total assets $137,191 $104,566 58,204 66,884 60,063
======== ======== ======== ======== ========
Current liabilities $ 42,509 33,393 17,323 17,052 11,674
Long-term liabilities 19,136 21,379 6,466 7,388 8,264
Shareholders' equity 75,546 49,794 34,415 42,444 40,125
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $137,191 $104,566 58,204 66,884 60,063
======== ======== ======== ======== ========

<PAGE>

Mesaba Aviation, Inc. (1)
Year ended March 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Selected Operating Data:

Revenue passengers carried 3,324,146 1,959,632 1,572,401 1,433,605 1,429,836
Revenue passenger miles (000's)(2) 805,495 445,871 344,592 314,636 299,267
Available Seat Miles (000's)(3) 1,469,229 864,083 732,018 705,182 663,578
Passenger revenue per
available seat mile $ .186 $.212 .204 .191 .198
Cost per available
seat mile $ .168 $.192 .190 .178 .185
Passenger load factor (4) 54.8% 51.6% 47.1% 44.6% 45.1%
Break-even load-factor (5) 48.3% 46.3% 43.3% 40.9% 42.8%
Yield per revenue
passenger mile (6) $ .340 $ .416 $ .434 $ .428 $ .427
Departures 201,622 144,266 123,985 114,399 108,141

</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) "Break-even 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.

<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (As used herein, "unit cost" means operating cost per
available seat mile. Dollars and shares outstanding are expressed in
thousands)

EARNINGS SUMMARY

The Company reported net income of $19.8 million or $0.95 per share for
the fiscal year ended March 31, 1998, compared to $12.0 million or $0.62 per
share in fiscal 1997 and $56.3 million or $3.21 per share in fiscal 1996.
The fiscal 1996 net earnings included a non-taxable $49.3 million gain
resulting from the spin- off of Airways Corporation ("Airways"). Fiscal 1996
net income per share without the gain was $.40 including a $.01 contribution
from AirTran Airways. Weighted average common shares common
share equivalents outstanding increased to 20.8 million in the current year
from 19.3 million and 17.5 million respectively. The increase in the
average number of shares outstanding was due primarily to dilutive effect
of the issuance of warrants to Northwest and the exercise of stock options
by current and former employees. Earnings per share and weighted average
shares outstanding for fiscal 1998, 1997 and 1996 have been adjusted to
reflect a three-for-two stock split in the form of a 50% stock dividend
declared by the Board of Directors on April 6, 1998 for shares held of
record on April 17, 1998.

RESULTS OF OPERATIONS

OPERATING REVENUES. Operating revenues rose 49.3% to $277.2 million in
fiscal 1998 from $185.7 million in fiscal 1997 and $170.5 million in fiscal
1996. Operating revenues for fiscal 1996 included revenues from Airways of
$18.7 million. Passenger revenue per available seat mile ("RASM") decreased
12.3% to $0.186 from $0.212 and $0.204 respectively, primarily due to the
introduction of the higher capacity RJ85 aircraft. Mesaba's average passenger
load factor was 54.8% in 1998, up from 51.6% in 1997 and 47.1% in 1996. The
improvement in traffic and load factor are attributable to the introduction
of ten RJ85 aircraft and the expanded jet-prop activity at the
Minneapolis/St. Paul airport as well as overall increases in passenger demand
within the industry.

OPERATING EXPENSES. Total operating expenses increased 48.6% to $246.9
million in 1998 from $166.1 million in 1997 and $158.1 million in 1996.
Operating expenses for 1996 included expenses from Airways of $18.7 million.
Mesaba experienced a 12.5% decrease in the cost per available seat mile (CASM)
to 16.8 cents compared with 19.2 cents in 1997. Seat capacity (measured in
ASMs) increased 70.0% in 1998 to 1,469.0 million primarily as a result of the
introduction of ten RJ85 aircraft in total, and the increased activity at the
Minneapolis/St. Paul airport. Mesaba took delivery of 31 additional Saab 340
aircraft during fiscal 1998. Mesaba has taken delivery of 20 Saab 340A and 35
340BPlus aircraft, 54 of which were in revenue service at March 31, 1998. The
following table compares components of Mesaba's operating cost per ASM for the
years ended March 31, 1998, 1997 and 1996:

1998 1997 1996
----- ----- -----
Wages and benefits 4.6 Cents 5.8 Cents 6.0 Cents
Fuel 1.7 2.1 2.0
Direct maintenance 2.9 2.9 2.4
Rents 3.4 3.6 4.1
Wet lease 0.5 - -
Landing fees 0.4 0.6 0.5
Insurance and taxes 0.5 0.6 0.7
Depreciation and amortization 0.4 0.5 0.6
Other 2.4 3.1 2.7
----- ----- -----
Total 16.8 Cents 19.2Cents 19.0 Cents

Wages and benefits increased to $67.2 million in fiscal 1998 compared to

<PAGE>

$49.9 million in fiscal 1997 and $47.0 million in 1996. Wages and benefits
for 1996 included expenses from Airways of $3.1 million. However the
increased capacity generated by the additional jet and jet-prop equipment has
caused these costs to be reduced on a unit cost basis 20.7% to 4.6 cents from
5.8 cents. The overall dollar increase is a result of increased cost of
flight crews due to a 31.4% increase in block hours flown and the addition of
flight crews to support the introduction of the RJ85 aircraft as well as
continued costs to support the Saab fleet transition program. Mesaba also
experienced an increase in wage and benefit cost of support personnel due to
an increase in scheduled operations. Overall, personnel levels (measured on a
full time equivalent basis at the fiscal year end) increased 44.6% to
approximately 2,503 from 1,731, with the remaining increase due to normal
wage and benefit increases.

Total fuel costs increased to $25.0 million in fiscal 1998 from $17.9
million in fiscal 1997 and $17.8 million in fiscal 1996. Airways total
fuel expense was $2.9 million in 1996. The increase is attributable to a
37.5% increase in consumption. The average price per gallon, including
taxes and into plane fees, was 83.5 cents in both fiscal 1998 and fiscal
1997 and 80.3 cents in fiscal 1996. Certain provisions of the Airlink
Agreement protect Mesaba from future increases in fuel prices. Unit cost
decreased 19.0% to 1.7 cents from 2.1 cents. Mesaba is not required to
provide fuel for the jet operation.

Direct maintenance expense, excluding wages and benefits costs, increased
to $42.2 million in fiscal 1998 from $25.0 million in fiscal 1997 and $20.0
million in fiscal 1996. Airways' direct maintenance expense was $2.2 million
in 1996. This increase was attributable to the addition of ten RJ85, seven Saab
340A and 24 Saab 340BPlus aircraft to the fleet when compared to one year ago.
This increase was partially offset by lower costs associated with the Metro III
fleet due to the final eight aircraft having been removed from service and
returned to lessors. On a unit cost basis the cost was unchanged year over
year.

Aircraft rentals were $49.5 million in fiscal 1998, $31.2 million in
fiscal 1997 and $31.3 million in fiscal 1996. Airways' aircraft rentals were
$1.5 million in fiscal 1996. Mesaba added ten RJ85, seven Saab 340A and 24
Saab 340BPlus aircraft during the period and returned eight Metro III and 12
Dash 8 aircraft to lessors. However, unit costs decreased 5.6% to 3.4 cents
from 3.6 cents.

Wet lease expense was $7.7 million in fiscal 1998 which was a result of
the expanded activity out of the Minneapolis/St. Paul hub. The wet lease
terminated on January 31, 1998. Mesaba incurred no prior wet lease expense.

Landing fees were $6.3 million in fiscal 1998, $4.8 million in fiscal
1997 and $4.5 million in fiscal 1996. Airways' landing fees were $0.5 million
in fiscal 1996. The increase is attributable to a 23.4% increase in jet-prop
departures and an increase in the average gross landing weight due to the
changing mix of aircraft. This increase was partially offset by a slight
decrease in the overall effective landing fee rate. Unit cost decreased 33.3%
to 0.4 cents from 0.6 cents. Mesaba is not required to pay landing fees for
wet lease or jet aircraft.

Insurance and taxes were $6.8 million in fiscal 1998, $5.3 million in
fiscal 1997 and $5.9 million in fiscal 1996. Airways' costs were $1.0
million in fiscal 1996. This is due primarily to an increase in passenger
liability insurance associated with increased passenger volume and an
increase in property taxes and hull insurance caused by increasing fleet
values associated with the Saab 340 (compared to Metro III aircraft) and RJ85
aircraft offset by a reduction in passenger liability and hull insurance
rates. Due to the additional capacity generated by the jet and jet-prop
equipment, unit cost decreased 16.7% to 0.5 cents from 0.6 cents.

Depreciation and amortization totaled $6.5 million in fiscal 1998
compared to $4.3 million in fiscal 1997 and $4.9 million in fiscal 1996.
Airways' depreciation and amortization totaled $0.6 million in 1996. The
increase in Mesaba's depreciation and amortization resulted primarily from
the acquisition of spare parts to support the RJ85 and Saab 340 fleet.
Generally, acquisition of spare parts for the Saab fleet are non-cash
expenditures funded by credits issued by the aircraft manufacturer. In
October 1996, the Company paid a contract rights fee in the form of a stock
purchase warrants to Northwest as part of the Regional Jet Services
Agreement. Contract rights are being amortized on a straight-line basis over
the minimum term of the Jet Agreement through October 2002. In June 1997,
the Company paid a contract rights fee in the form of stock purchase warrant
to Northwest as a part of the new Airlink Agreement. These contract rights
are being amortized on a straight-line basis over the term of the agreement
through June 2007. The increased amortization was partially offset by

<PAGE>

a reduction in warrant amortization related to previous warrants issued to
Northwest that were fully amortized as of March 1997. Unit costs decreased
20.0% to .4 cents from .5 cents.

Administrative and other costs totaled $35.7 million in fiscal 1998,
$27.8 million in fiscal 1997 and $27.3 million in fiscal 1996. Airways'
administrative and other costs were $6.7 million in 1996. This increase is
primarily attributable to higher crew related expenses due to increased
flying and training to support the RJ85 and Saab 340 fleet transition
program. Additionally, higher passenger and airport related expenses were
incurred due to increases in traffic and the number of cities served. Unit
cost decreased 22.6% to 2.4 cents from 3.1 cents. Mesaba is generally not
required to provide airport and passenger related expenses for the jet
operation.

OPERATING INCOME. The Company's operating income was $30.4 million in
fiscal 1998, $19.6 million in fiscal 1997 and $12.3 million in fiscal 1996.
Mesaba's operating margins were 11.0% in 1998, 10.5% in 1997 and 7.2% in 1996.

NONOPERTING INCOME. Nonoperating income was $2.6 million in fiscal 1998,
$1.1 million in fiscal 1997 and $0.3 million (not including the one-time non
taxable gain of $49.3 million on the spin-off of Airways) in fiscal 1996.
Interest income increased $0.6 million to $3.0 million from $1.6 million.

PROVISION FOR INCOME TAXES. The provision for income taxes was $13.1
million in fiscal 1998, $8.7 million in fiscal 1997 and $5.7 million in
fiscal 1996. The effective tax rate decreased to 39.9% in 1998 from 42.1% in
1997 and 44.8% (not including the gain on distribution which is not taxable)
in 1996. This decrease is due primarily to the lower level of nondeductible
expenses as a percentage of taxable income.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital increased to $51.7 million with a current
ratio of 2.2 at March 31, 1998 compared to $37.8 million and 2.1 at March 31,
1997. Cash and short-term investments increased by $17.4 million to $66.6
million at March 31, 1998. Net cash flows provided by operating activities
totaled $30.0 million in fiscal 1998 compared to $23.4 million in fiscal
1997. Net cash flows provided by financing activities amounted to $0.7
million in fiscal 1998 and consisted of principal payments of $0.4 million
offset by $1.1 million in proceeds from the exercise of stock options by
current and former employees.

The Company has an approved $5.0 million unsecured revolving line of
credit. This credit line was not utilized during fiscal 1998. In addition,
the Company maintains a letter of credit facility totaling $0.2 million which
secures a lease commitment to the County of Wayne, Michigan for the Company's
Detroit hangar.

Long term debt, net of current maturities, totaled $4.8 million at March
31, 1998 and $5.2 million as of March 31, 1997. 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 .06 at March 31, 1998 compared to .10 at the end of fiscal 1997.

As of June 1998, Mesaba's fleet consisted of 86 aircraft covered under
operating leases with remaining terms of two months to 16 years and aggregate
monthly lease payments of approximately $5.0 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. Mesaba has negotiated a financing agreement with
the airframe manufacturer whereby operating lease financing for both used and
new Saab 340 aircraft are committed to the Company on competitive rates and
terms.

Approximately 79% of Mesaba's passengers connected with Northwest in
fiscal 1998, 72% in 1997 and 71% in 1996. Approximately 98% of the Company's
accounts receivable balance at March 31, 1998 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.

<PAGE>

The Company has historically relied upon cash reserves and internally
generated funds to support its working capital requirements. Management
believes that funds from operations and existing cash balances will provide
adequate resources for meeting non-aircraft capital needs in fiscal 1999.

OTHER INFORMATION

On April 1, 1998 the Company signed an amendment to the Jet Agreement
with Northwest providing for the delivery of six additional RJ85 aircraft.
As consideration for the additional jets, the Company issued a warrant to
Northwest for the purchase of 474,192 shares of the Company's common stock at
an exercise price of $21.25 per share. The warrant expires on October 25,
2006.

On June 2, 1998 the Company signed an amendment to the Jet Agreement with
Northwest providing for the delivery of 18 additional RJ85 aircraft. As
consideration for the additional jets, the Company issued a warrant to
Northwest for the purchase of 1,435,230 shares of the Company's common stock
at an exercise price of $21.25 per share. The warrant expires on October 25,
2006.

The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's computer systems and applications will function
properly beyond 1999. The Company believes that it has allocated adequate
resources for this purpose and expects its Year 2000 date conversion program to
be completed on a timely basis. The Company does not expect to incur
significant costs related to enhancements necessary to prepare its systems for
the Year 2000. The company is in the process of assessing Year 2000 compliance
by significant vendors. This assessment is incomplete, but management is not
aware of any Year 2000 issues that would materially adversely affect operations
or results thereof.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements 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, 1998 and 1997 23

Consolidated statements of operations for the years
ended March 31, 1998, 1997 and 1996 24

Consolidated statements of shareholders' equity for the years
ended March 31, 1998, 1997 and 1996 25

Consolidated statements of cash flows for the years
ended March 31, 1998, 1997 and 1996 26

Notes to consolidated financial statements 27

<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, 1998
and 1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
May 8, 1998

<PAGE>

MESABA HOLDINGS, INC. AND SUBSIDIARY

Consolidated Balance Sheets
(In Thousands, Except Share Information)

As of March 31,
----------------------
1998 1997
------ ------
ASSETS

CURRENT ASSETS:
Cash and cash equivalents $66,554 $49,126
Accounts receivable, net 13,610 13,344
Inventories 5,547 2,077
Prepaid expenses and deposits 3,788 3,054
Deferred income taxes 4,702 3,600
--------- ---------
Total current assets 94,201 71,201
--------- ---------
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Flight equipment 22,449 18,655
Other property and equipment 16,865 12,008
Accumulated depreciation and amortization (16,364) (20,038)
--------- ---------
Net property and equipment 32,097 19,772

OTHER ASSETS, net 10,893 13,593
--------- ---------
$137,191 $104,566
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 436 $ 425
Accounts payable 18,093 11,932
Accrued liabilities-
Payroll 9,362 6,589
Maintenance 6,877 7,469
Other 7,741 6,978
--------- ---------
Total current liabilities 42,509 33,393
CAPITAL LEASE OBLIGATIONS, net of current maturities 4,751 5,194
OTHER NONCURRENT LIABILITIES 14,385 16,185
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6)

SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 25,000,000 shares
authorized; 19,397,253 and 19,176,069 shares
issued and outstanding, respectively 194 192
Paid-in capital 41,196 40,050
Warrants 7,900 3,100
Retained earnings 26,256 6,452
--------- ---------
Total shareholders' equity 75,546 49,794
--------- ---------
$137,191 $104,566
========= =========

The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Information)

For the Years Ended March 31,
-----------------------------
1998 1997 1996
-------- -------- --------
OPERATING REVENUES:
Passenger $273,973 $183,409 $166,900
Freight and other 3,252 2,292 3,555
-------- -------- --------
Total operating revenues 277,225 185,701 170,455
-------- -------- --------
OPERATING EXPENSES:
Wages and benefits 67,194 49,850 47,000
Aircraft fuel 24,983 17,850 17,795
Aircraft maintenance 42,172 25,012 19,518
Aircraft rents 49,500 31,242 31,330
Wet lease 7,735 - -
Landing fees 6,330 4,770 4,474
Insurance and taxes 6,761 5,307 5,886
Depreciation and amortization 6,500 4,265 4,854
Other 35,681 27,822 27,291
-------- -------- --------
Total operating expenses 246,856 166,118 158,148
-------- -------- --------
Operating income 30,369 19,583 12,307

NONOPERATING (EXPENSE) INCOME:
Interest expense (458) (511) (1,441)
Interest income and other 3,022 1,641 1,761
Gain on distribution of subsidiary - - 49,303
-------- -------- --------
Income before income taxes 32,933 20,713 61,930

PROVISION FOR INCOME TAXES 13,129 8,727 5,655
-------- -------- --------
Net income $ 19,804 $ 11,986 $ 56,275
======== ======== ========
Earnings Per Common Share - Basic $ 1.02 $ 0.63 $ 3.34
======== ======== ========
Weighted Average Number of Common Shares
Outstanding 19,270 19,143 16,857
======== ======== ========
Earnings Per Common Share - Diluted $ 0.95 $ 0.62 $ 3.21
======== ======== ========
Weighted Average Number of Common Shares
Outstanding and Common Share Equivalents
Outstanding 20,846 19,310 17,534
======== ======== ========

The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<TABLE>
<CAPTION>
MESABA HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Shareholders' Equity

For the Years Ended March 31

(In Thousands, Except Share and Per Share Information)
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, 1995 12,938,059 $129 $13,156 2,248,617 $5,089 $24,070 $ 42,444
Stock Dividend 3,078,413 31 12,796 - - (12,827) -
Exercise of stock options, net of related tax effects 838,980 8 4,262 - - - 4,270
Exercise of warrants 2,248,617 22 9,545 (2,248,617) (5,089) - 4,478
Distribution of Subsidiary - - - - - (72,531) (72,531)
Dividends paid on common stock ($.06 per common share) - - - - - (521) (521)
Net income - - - - - 56,275 56,275
---------- ---- -------- ---------- ------- -------- ---------
BALANCE, March 31, 1996 19,104,069 190 39,759 - - (5,534) $34,415
Issuance of warrants - - - 922,500 3,100 - 3,100
Exercise of stock options, net of related tax effects 72,000 2 291 - - - 293
Net income - - - - - 11,986 11,986
---------- ---- -------- ---------- ------- -------- ---------
BALANCE, March 31, 1997 19,176,069 192 $40,050 922,500 3,100 6,452 $49,794
Issuance of warrants - - - 1,320,000 4,800 - 4,800
Exercise of stock options, net of related tax effects 221,184 2 1,146 - - - 1,148
Net income - - - - - 19,804 19,804
---------- ---- -------- ---------- ------- -------- ---------
BALANCE, March 31, 1998 19,397,253 $194 $41,196 2,242,500 $7,900 $26,256 $75,546
========== ==== ======== ========== ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.

<PAGE>
<TABLE>
<CAPTION>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
For the Years Ended March 31
---------------------------------
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $19,804 $11,986 $56,275
Adjustments to reconcile net income to net
cash provided by operating activities-
Gain on distribution of subsidiary - - (49,303)
Depreciation and amortization 6,500 4,265 4,854
Deferred income taxes (819) (2,228) 293
Change in current operating items:
Accounts receivable, net (266) (4,090) (1,310)
Inventories (1,835) (411) 164
Prepaid expenses and deposits (734) (280) (4,174)
Accounts payable and other 7,305 14,117 9,311
---------- ----------- ----------
Net cash flows provided by operating activites 29,955 23,359 16,110
---------- ----------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (13,418) (3,301) (4,127)
Increase in other assets 175 (215) -
Decrease in other liabilities - (4) (4)
---------- ----------- ----------
Net cash flows used for investing activities (13,243) (3,520) (4,131)
---------- ----------- ----------
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 (432) (434) (322)
Proceeds from issuance of common stock 1,148 293 8,748
Dividends paid - - (521)
---------- ----------- ----------
Net cash flows used for financing activities 716 (141) (9,402)
---------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 17,428 19,698 2,577
CASH AND CASH EQUIVALENTS:
Beginning of year 49,126 29,428 26,851
---------- ----------- ----------
End of year $66,554 $49,126 $29,428
========== =========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 458 $ 511 $ 555
========== =========== ==========
Income taxes $15,169 $ 7,948 $ 5,296
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Share and Per Share Information)

1.CORPORTATE 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 10). All significant
intercompany balances have been eliminated in consolidation.

Business

The Company 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 88 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 extends through June 30, 2007,
automatically renewing indefinitely thereafter. Northwest may terminate the
Airlink Agreement on 365 days notice any time after June 30, 2000. 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 $17,963 to Northwest
for fuel, reservation systems, ground handling and other services in fiscal
1998, $16,611 in 1997 and $7,526 in 1996. 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
$4,297 in 1998, $1,960 in 1997, and $1,643 in 1996. Mesaba also benefits from
its relationship with Northwest through advertising and marketing programs.

Mesaba and Northwest entered into a Regional Jet Services Agreement, dated
October 25, 1996 (the "Jet Agreement"), under which Mesaba will operate 12
Avro/AI(R) RJ85 ("RJ85") regional jets for Northwest. The aircraft will be
subleased from Northwest and will be operated as Northwest Jet Airlink from
Minneapolis/St. Paul and Detroit hubs according to routes and schedules
determined by Northwest. Jet service began in June, 1997.

Approximately 79% of Mesaba's passengers connected with Northwest in fiscal
1998, 72% in 1997 and 71% in 1996. Approximately 98% of the March 31, 1998
accounts receivable balances in the accompanying consolidated balance sheet are
due from Northwest.

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.

The Company has implemented a Year 2000 compliance program designed to ensure
that the Company's computer systems and applications will function properly
beyond 1999. The Company believes that it has allocated adequate resources for
<PAGE>
this purpose and expects its Year 2000 date conversion program to be completed
on a timely basis. The Company does not expect to incur significant costs
related to enhancements necessary to prepare its systems for the Year 2000.
The company is in the process of assessing Year 2000 compliance by significant
vendors. This assessment is incomplete, but management is not aware of any Year
2000 issues that would materially adversely affect operations or results
thereof.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

Cash equivalents consist primarily of U.S. government securities and
interest-bearing deposits with maturities of less than 90 days and are stated
at cost, which approximates market.

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.

Contract Rights

In connection with the Jet Agreement, the Company paid a contract rights fee in
the form of a stock purchase warrant to Northwest. Contract rights and related
other assets totaled $3,100 and related accumulated amortization totaled $689
and $172 at March 31, 1998 and 1997 respectively. Contract rights are
amortized on a straight-line basis over six years to coincide with the minimum
term of the Jet Agreement.

In connection with the Airlink Agreement, the Company paid a contract rights
fee in the form of a stock purchase warrant to Northwest. Contract rights and
related other assets totaled $4,800 and related accumulated amortization
totaled $360 at March 31, 1998. Contract rights are amortized on a
straight-line basis over ten years to coincide with the 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 under the liability method whereby
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
<PAGE>
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

Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires presentation of "Basic" and "Diluted" earnings per share amounts, as
defined. "Basic" earnings per share replaces primary earnings per share under
APB Opinion No. 15, and excludes the dilutive effects of options, warrants and
convertible securities, if any, from the calculation. Fully diluted earnings
per share has not changed significantly but has been named "Dilutive" earnings
per share. Statement No. 128 became effective for fiscal years ending after
December 15, 1997. All earnings per share prior to 1997 have been restated to
comply with this Statement.

Other Assets

In order to assist the Company in integrating new aircraft into its fleet,
certain manufacturers provide the Company with spare parts or other credits.
The Company has deferred these amounts and amortizes them over the terms of the
related aircraft leases as a reduction of rent expense. Amortization expense
of $1,071 and $298 was recorded during the year ended March 31, 1998 and 1997
respectively.

The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of
the remaining balance of its long- lived assets. If such events or
circumstances were to indicate that the carrying amount of these assets would
not be recoverable, the Company would estimate the future cash flows expected
to result from the use of the assets and their eventual disposition. If the
sum of the expected future cash flows (undiscounted and without interest
charges) were less than the carrying amount of the intangible assets, the
Company would recognize an impairment loss.

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 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.

Reclassifications

Certain balances in the fiscal 1997 consolidated financial statements have been
reclassified to conform with the fiscal 1998 presentation. These
reclassifications had no impact on net income or shareholders' equity as
previously reported.

Recent Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "disclosure about Segments
of an Enterprise and Related Information." Statement No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements for periods beginning after
December 15, 1997. The Statement requires business segment financial
information be reported in the financial statements utilizing the management
approach. The management approach is defined as the manner in which management
organizes the segments within the organization for making operating decisions
and assessing performance. Management believes that the adoption of Statement
No. 131 will not have a material impact on the financial statements.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which establishes standards for
<PAGE>
reporting and displaying comprehensive income, as defined, and its components
in financial statements issued for fiscal years beginning after December 15,
1997. Management believes that the adoption of Statement No. 130 will not have
a material impact on the financial statements.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages companies to recognize expense for
stock-based awards on their fair-value on the date of grant. At a
minimum, Statement No. 123 requires pro forma disclosures beginning with
the Company's 1996 financial statements. The Company elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for stock Issued
to Employees" and related interpretations and provide the necessary
disclosures required by Statement No. 123, rather than adopt the expense
recognition provisions of this Statement.

Statement of Financial Accounting Standards No. 121, "accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amounts. Statement No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed
of. The Company adopted Statement No. 121 in the first quarter of 1996
and the effect of adoption was not significant.

During April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities".
SOP 98-5 requires companies to expense as incurred all start-up costs that
are not otherwise capitalizable as long-lived assets. The Company will
elect to implement the accounting standard during the first quarter of
fiscal 1999. Had the Company adopted the accounting standard during the
fourth quarter of fiscal 1998, the effect of the accounting change would
have been to charge to operations the unamortized balance of start-up costs
as of March 31, 1998 of $780, net of $520 of related tax benefit in the
accompanying statements of operations.

3.FLIGHT EQUIPMENT:

The Company's airline fleet consisted of the following aircraft held under
operating leases as of March 31, 1998:

Number of Seating
Aircraft Type of Aircraft Capacity
---------- ------------------------------- ------------
55 Saab 340 30/34
13 de Havilland Dash 8 (Dash 8) 37
11 Avro RJ85 69

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 were transferred to Mesaba
effective January 1, 1996.
<PAGE>

Aircraft maintenance and repairs on Saab 340 and RJ85 aircraft are charged to
expense when incurred, except for the cost of major airframe inspections, for
which the estimated cost is accrued and charged to maintenance expense based
upon hours flown, thus providing for the inspection cost when it occurs.

The aircraft operating leases require future minimum rental payments as follows
at March 31, 1998:

1999 $ 51,387
2000 45,597
2001 45,597
2002 45,597
2003 45,597
Thereafter $ 264,853

Mesaba has firm commitments for 21 additional Saab 340 and one RJ85 aircraft.
The table above does not reflect any minimum lease payments for those
undelivered aircraft.

Rent expense under aircraft operating leases totaled approximately $49,500 in
1998, $31,242 in 1997 and $31,330 in 1996 (including $27,172, $21,564 and
$21,564 paid to Northwest in 1998, 1997 and 1996, respectively).

In March 1996, the Company entered into an agreement with Saab Aircraft AB to
acquire up to 72 Saab 340 aircraft. As of March 31, 1998, Mesaba has taken
delivery of 55 of the thirty to thirty- four passenger Saab regional airliner.
The balance of the aircraft will replace Mesaba's remaining fleet of Dash 8
aircraft within the next nine months.

4.INCOME TAXES:

The provision for income taxes for the three years ended March 31 is comprised
of the following elements:

1998 1997 1996
--------- -------- --------
Current:
Federal $11,053 $8,748 $4,130
State 2,895 2,207 1,232
Deferred (819) (2,228) 293
--------- -------- --------
Total provision for income taxes $13,129 $8,727 $5,655
========= ======== ========

<PAGE>

The actual income tax expense differs from the expected tax expense for 1998,
1997 and 1996 (computed by applying the U.S. federal corporate tax rate of 35
percent to earnings before income taxes) as follows:

1998 1997 1996
--------- -------- ---------
Computed tax expense at statutory rate $ 11,527 $ 7,250 $ 21,675
Increase (decrease) in income taxes
resulting from:
Tax free distribution of subsidiary - - (17,256)
State taxes, net of federal tax benefit 1,672 1,654 933
Non-deductible flight crew expenses 552 397 251
Other, net (622) (574) 52
--------- -------- ---------
Total income tax expense $ 13,129 $ 8,727 $ 5,655
========= ======== =========

Deferred tax assets and liabilities are comprised of the following as of
March 31:

1998 1997
Deferred tax assets: -------- --------
Maintenance $ 2,126 $ 2,560
Accrued vacation 1,372 1,081
Property taxes 645 398
Prepaid rent 229 248
Workers' compensation insurance 538 389
Warrant Amortization 489 -
IRS Settlement 502 -
Other 393 53
-------- --------
Gross deferred tax assets 6,294 4,729
-------- --------
Deferred tax liabilities:
Property and equipment 1,042 619
Preoperating costs 457 63
Integration funds 93 164
-------- --------
Gross deferred tax liabilities 1,592 846
-------- --------
Net deferred tax assets $ 4,702 $ 3,883
======== ========

5.SHAREHOLDERS' EQUITY:

Stock Split

On April 6, 1998 the Company's board of directors declared a three-for-two
stock split of the Company's common stock for shares held of record on April
17, 1998. The par value per common share remained at $0.01. This stock split
has been retroactively reflected in these financial statements.

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 vest over a period of four to five years commencing one year
after the date of grant. The purchase price of the stock is 110% of the fair
<PAGE>
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 10).

Stock option transactions for the three years ended March 31 were as follows:

Shares Price Per Share
----------- ---------------
Options outstanding, March 31, 1995 1,706,430 $1.42-$6.83
Granted 691,500 $2.92-$5.25
Exercised (838,980) $1.42-$6.33
Canceled (617,700) $4.50-$6.83
-----------
Options outstanding, March 31, 1996 941,250 $2.75-$5.25
Granted 456,000 $7.75-$8.92
Exercised (72,000) $3.17-$5.17
Canceled (15,000) $8.00
-----------
Options outstanding, March 31, 1997 1,310,250 $2.75-$8.92
Granted 217,500 $8.25-$14.25
Exercised (221,184) $2.75-$8.92
-----------
Options outstanding, March 31, 1998 1,306,566
===========
Exercisable at March 31, 1998 458,316
===========
Available for grant at March 31, 1998 744,000
===========

As of March 31, 1998, of the total shares available for grant, 219,000 are
available for non-employee directors and 525,000 are available for certain
management personnel.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized in
the accompanying consolidated statement of operations. Had compensation cost
been recognized based on the fair values of options at the grant dates
consistent with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and net income per common share would
have been decreased to the following pro forma amounts:

1998 1997 1996
---- ---- ----
Net Income
As reported $19,804 $11,986 $56,275
Pro forma $18,873 $11,462 $56,086

Basic Earnings Per Share
As reported $ 1.02 $ 0.63 $ 3.31
Pro forma $ 0.97 $ 0.60 $ 3.30

Diluted Earnings Per Share
As reported $ 0.95 $ 0.62 $ 3.21
Pro forma $ 0.91 $ 0.59 $ 3.20
<PAGE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions summarized below:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.66% - 5.68% 6.08% - 6.45% 5.44% - 6.10%
Expected life of option grants 6 yrs. 6 yrs. 6 yrs.
Expected volatility of option grants 36.63% 43.50% - 45.06% 43.96% - 49.80%
Expected dividend yield $0 $0 $0
Weighted average fair value of options granted $13.98 $ 4.19 $ 1.40

</TABLE>

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 current market prices through payroll deductions.
All administrative costs of this plan are paid by the Company.

6.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, 1998:

Capitalized Operating
Leases Leases
----------- ---------
1999 $ 861 $ 250
2000 784 250
2001 785 250
2002 786 250
2003 643 250
Thereafter 4,025 1,613
-------- --------
7,884 $ 2,863
Less- Amount representing interest 2,697 ========
--------
5,187
Less- Current maturities 436
--------
Total long-term capital lease obligations $ 4,751
========

Rent expense under all facility operating leases totaled approximately $3,410
in 1998, $2,857 in 1997 and $2,405 in 1996.

Benefit Plan

The Company maintains a 401(k) benefit plan for eligible employees whereby the
Company will match 25% to 75% of employee contribution to the plan, up to 8%
of each employee's compensation, depending on each employee's length of
service. The Company's contribution to the plan totaled $701 to the plan in
1998, $589 in 1997 and $303 in 1996.
<PAGE>

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.

7. EARNINGS PER SHARE

The following table sets forth the computation of earnings per common share

1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Numerator:
Net Income $ 19,804 $ 11,986 $ 56,275
Denominator:
For Earnings per Common Share:
Weighted average number of issued shares outstanding 19,270 19,143 16,857
Effect of dilutive Securities:
Computed shares outstanding under the Company's stock
option plan utilizing the treasury stock method 711 86 141
Computed shares outstanding under warrants issued
utilizing the treasury stock method 865 81 536
------ ------ ------
For earnings per Common Share - Diluted:
Weighted Average Common Shares and Share Equivalents
Outstanding 20,846 19,310 17,534
====== ====== ======
Earnings per share - Basic $1.02 $0.63 $3.34
====== ====== ======
Earnings per share - Diluted $0.95 $0.62 $3.21
====== ====== ======
</TABLE>

8. SUBSEQUENT EVENTS (unaudited)

Mesaba and Northwest entered into an amendment to the Jet Agreement, dated
April 1, 1998, under which Mesaba will operate an additional six RJ85 regional
jets for Northwest. The aircraft will be subleased from Northwest and will be
operated as Northwest Jet Airlink from Minneapolis/St. Paul and Detroit hubs
according to routes and schedules determined by Northwest. The aircraft will
be delivered at a rate of approximately one aircraft per month beginning in
June 1998. In connection with the amended Jet Agreement, the Company will issue
a warrant to Northwest to allow Northwest to purchase 474,192 shares of the
Company's common stock at an exercise price of $21.25 per share.

Mesaba and Northwest entered into an agreement, dated June 2, 1998, under which
Mesaba will fly an additional 18 RJ85 regional jets for Northwest. The
aircraft will be subleased from Northwest and will be operated as Northwest
Jet Airlink from Minneapolis/St. Paul and Detroit hubs according to routes and
schedules determined by Northwest. In connection with the amended Jet
Agreement, the Company issued a warrant to Northwest to allow Northwest to
purchase 1,435,230 shares of the Company's common stock at an exercise price
of $21.25 per share.
<PAGE>

9. QUARTERLY FINANCIAL DATA

(in thousands except share and per share data)

Quarters of Fiscal Year Ended March 31, 1998 |
----------------------------------------------|---------
June 30, September December March 31, | Fiscal
1997 30, 1997 31, 1997 1998 |Year 1998
-------- --------- -------- --------- |---------
Total operating revenues $ 54,424 $ 71,942 $ 75,443 $ 75,416 |$ 277,225
Operating income 6,209 9,155 8,327 6,678 | 30,369
Net income 3,973 5,748 5,292 4,791 | 19,804
Earnings per Common share $ 0.21 $ 0.30 $ 0.27 $ 0.25 |$ 1.03
Weighted average Common |
shares outstanding 19,183 19,238 19,276 19,381 | 19,270
Earnings per Common |
Share - Diluted $ 0.20 $ 0.28 $ 0.25 $ 0.22 |$ 0.95
Weighted average |
Common shares and Share |
Equivalents outstanding 19,792 20,549 21,021 21,530 | 20,846

Quarters of Fiscal Year Ended March 31, 1997 |
----------------------------------------------|---------
June 30, September December March 31, | Fiscal
1996 30, 1996 31, 1996 1997 |Year 1997
-------- --------- -------- --------- |---------
Total operating revenues $ 42,421 $ 46,675 $ 48,047 $ 48,558 |$ 185,701
Operating income 5,069 6,500 4,901 3,113 | $19,583
Net income 3,001 3,860 3,001 2,124 | $11,986
Earnings per Common share $ 0.16 $ 0.20 $ 0.16 $ 0.11 |$ 0.63
Weighted average common |
shares outstanding 19,113 19,135 19,150 19,173 | 19,143
Earnings per Common |
Share - Diluted $ 0.15 $ 0.20 $ 0.16 $ 0.11 |$ 0.62
Weighted average |
Common shares and Share |
Equivalents outstanding 19,466 19,433 19,155 19,175 | 19,310

<PAGE>

10. 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 acquired company's
name was changed to Airtran Airways.

In March 1996, 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 Corporation 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 3,078,413
shares of Mesaba Holdings, Inc. common stock. Northwest exercised its warrants
to purchase 2,248,617 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 and management of Mesaba's segment pricing and
yield management functions. 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, guaranteed that Mesaba's pretax income
would 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 (reduced 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 of fiscal
1996 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.

<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 1998 Annual Meeting of Shareholders
(the "1998 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 12.

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 1998 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 1998 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 1998 Proxy Statement.

<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, 23
1998 and 1997
Consolidated statements of operations for 24
the years ended March 31, 1998, 1997 and
1996
Consolidated statements of shareholders' 25
equity for the years ended March 31, 1998,
1997 and 1996
Consolidated statements of cash flows for 26
the years ended March 31, 1998, 1997 and
1996
Notes to consolidated financial statements 27

(2) Not applicable

<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.Articles of Amendment to the Company's Articles of
Incorporation. Incorporated by reference to Exhibit 3A to the
Company's 10-Q for the quarter ended September 30, 1997.

3C.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.

4B.Common Stock Purchase Warrant dated October 26, 1996 issued to
Northwest Airlines, Inc. Incorporated by reference to Exhibit
4A to the Company's Form 10-Q for the quarter ended September
30, 1996

4C.Common Stock Purchase Warrant dated October 17, 1997 issued to
Northwest Airlines, Inc. Incorporated by reference to Exhibit
4A to the Company's Form 10-Q for the quarter ended September
30, 1997

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 Aviation,
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 Mesaba Aviation Inc.
Mesaba Holdings, Inc and Northwest Airlines, Inc. (certain
portions of this agreement are subject to an order granting
confidential treatment pursuant to Rule 24b-2). Incorporated
by reference to Exhibit 10A to the Company's Form 10-Q for the
quarter ended September 30, 1997.

10G.Regional Jet Services Agreement between Mesaba Holdings,
Inc., Mesaba Aviation, Inc. and Northwest Airlines, Inc.,
dated October 25, 1996 (certain portions of this agreement are
subject to an order granting confidential treatment pursuant
to Rule 24b-2). Incorporated by reference to Exhibit 10A to
the Company;s Form 10-Q for the quarter ended September 30,
1996.

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 Aviation,
Inc. 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
Amendment to Revolving Note between Mesaba Aviation, Inc. and
Norwest Bank Minnesota, National Association. Incorporated
by reference to Exhibit 10J to the Company's Form 10-K for
the year ended March 31, 1997.

10K.Letter of Credit and Reimbursement Agreement dated as of August 1,
1990 between Mesaba Aviation, Inc. 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.

<PAGE>

10L.Special Facilities Lease dated as of August 1, 1990 between
Charter County of Wayne, State of Michigan and Mesaba Aviation,
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 Aviation, Inc. 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 Aviation, Inc. 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.Stock Option Plan (as amended July 1, 1997. Incorporated by
reference to Exhibit 10B to the Company's Form 10-Q for the
quarter ended September 30, 1997

10S.Agreement between AirTran Corporation, Mesaba Aviation, Inc.,
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
Aviation, Inc. 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). Incorporated by
reference to Exhibit 10U to the Company's Form 10-K/A for the
year ended March 31, 1996.

10V.Letter Agreement regarding Saab 340B Plus 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). Incorporated by reference to Exhibit 10V to
the Company's Form 10-K/A for the year ended March 31,
1996.

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). Incorporated by reference to Exhibit 10W to the
Company's Form 10-K/A for the year ended March 31, 1996.

10X.Letter Agreement of October 25, 1996 relating to Regional Jet
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). Incorporated by reference to Exhibit 10A to
the Company's Form 10-Q/A for the quarter ended September
30, 1996.

<PAGE>

21. Subsidiaries. Incorporated by reference to Exhibit 21 to the
Company's Form 10-K for the year ended March 31, 1997.

23. Consent of independent public accountants.

24. Powers of Attorney.

(b) Reports on Form 8-K.
--------------------
No reports were filed on form 8-K during the period.

<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.

MESABA HOLDINGS, INC.

Dated: June 29, 1998 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 June 29, 1998
Bryan K. Bedford Executive Officer
(Principal Executive Officer) and Director

/s/ Robert H. Cooper
______________________ Vice President and Chief June 29, 1998
Robert H. Cooper Financial Officer
(Principal Financial Officer)
/s/ Jon R. Meyer
______________________ June 29, 1998
Jon R. Meyer Controller
(Principal Accounting Officer)
*
______________________
Donald E. Benson Director June 29, 1998

*
______________________
Christopher E. Clouser Director June 29, 1998

*
______________________
Richard B. Hirst Director June 29, 1998

*
______________________
Carl R. Pohlad Director June 29, 1998

*
______________________
Robert C. Pohlad Director June 29, 1998

*
______________________
Raymond J. Vecci Director June 29, 1998

*
______________________
Raymond W. Zehr, Jr. Director June 29, 1998

*By /s/ Bryan K. Bedford
____________________
Bryan K. Bedford Attorney-in-fact June 29, 1998

<PAGE>
EXHIBIT INDEX

Manually Numbered
Exhibit No. Exhibit Page 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.

4B. Common Stock Purchase Warrant dated
October 26, 1996 issued to Northwest
Airlines, Inc. Incorporated by reference
to Exhibit 4A to the Company's Form
10-Q for the quarter ended September
30, 1996

4C. Common Stock Purchase Warrant dated
October 17, 1997 issued to Northwest
Airlines, Inc. Incorporated by reference
to Exhibit 4A to the Company's Form
10-Q for the quarter ended September
30, 1997

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 Aviation, 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
Mesaba Holdings, Inc, Mesaba Aviation,
Inc., and Northwest Airlines, Inc.
(certain portions of this agreement
are subject to an order granting
confidential treatment pursuant to
Rule 24b-2). Incorporated by reference
to Exhibit 10A to the Company's Form
10-Q for the quarter ended
September 30, 1997.

<PAGE>

10G. Regional Jet Services Agreement between
Mesaba Holdings, Inc., Mesaba Aviation,
Inc. and Northwest Airlines, Inc., dated
October 25, 1996 (certain portions of
this agreement are subject to an order
granting confidential treatment pursuant
to Rule 24b-2). Incorporated by reference
to Exhibit 10A to the Company;s Form 10-Q
for the quarter ended September 30, 1996.

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 Aviation,Inc.
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
Amendment to Revolving Note between
Mesaba Aviation,Inc.and Norwest Bank
Minnesota, National Association.
Incorporated by reference to Exhibit
10J to the Company's Form 10-K for the
year March 31, 1997.

10K. Letter of Credit and Reimbursement
Agreement dated as of August 1,
1990 between Mesaba Aviation, Inc. 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 Aviation, 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 Aviation, Inc.
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 Aviation, Inc. 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.

<PAGE>

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. 1994 Stock Option Plan (as amended July
1, 1997). Incorporated by reference
to Exhibit 10B of the Company's Form
10-Q for the quarter ended September
30, 1997.

10S. Agreement between AirTran
Corporation, Mesaba Aviation, Inc.,
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 Aviation, Inc.
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).
Incorporated by reference to
Exhibit 10U on the Company's Form
10-K/A for the year ended March 31,
1996.

10V. Letter Agreement regarding Saab
340B Plus 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). Incorporated by
reference to Exhibit 10V on the
Company's Form 10-K/A for the year
ended March 31, 1996.

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).
Incorporated by reference to
Exhibit 10W on the Company's Form
10-K/A for the year ended March 31,
1996.

10X. Letter Agreement of October 25,
1996 relating to Regional Jet
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). Incorporated by reference
to Exhibit 10W on the Company's
Form 10-Q/A for the quarter ended
September 30, 1996.

21. Subsidiaries. Incorporated by reference
to Exhibit 21 to the Company's Form
10-K for the year ended March 31, 1997

23. Consent of independent public
accountants.

24. Powers of Attorney.

<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, 33-42759 and 33-22977.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
June 29, 1998

<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 without the other, his true and lawful
attorney-in-fact and agent, with full power of substituition and
resubstituition, for him and in his stead, in any and all capacities to
sign Form 10-K of Mesaba Holdings, Inc. for the year ended March 31, 1998,
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, herby ratifying and confiming
all that said attorney-in-fact and agent, or his substitute or substitutes,
may lawfully do or cause to be done by virtue herof.

Dated: June 25, 1998
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 without the
other, his true and lawful attorney-in-fact and agent, with full
power of substituition and resubstituition, for him and in his
stead, in any and all capacities to sign Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1998, 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, herby ratifying and confiming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue herof.

Dated: June 25, 1998
Signed: /s/ Donald E. Benson
---------------------------
Donald E. Benson

<PAGE>

POWER OF ATTORNEY

Dated: June 25, 1998
Signed: /s/ Richard B. Hirst
---------------------------
Richard B. Hirst

<PAGE>

POWER OF ATTORNEY

Dated: June 25, 1998
Signed: /s/ Carl R. Pohlad
---------------------------
Carl R. Pohlad

<PAGE>

POWER OF ATTORNEY

Dated: June 24, 1998
Signed: /s/ Robert C. Pohlad
---------------------------
Robert C. Pohlad

<PAGE>

POWER OF ATTORNEY

Dated: June 25, 1998
Signed: /s/ Raymond W. Zehr, Jr.
---------------------------
Raymond W. Zehr, Jr.

<PAGE>

POWER OF ATTORNEY

Dated: June 25, 1998
Signed: /s/ Raymond J. Vecci
---------------------------
Raymond J. Vecci

<ARTICLE> 5

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