Furloughs At Mesaba
11-09-2005, 01:30 PM
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Mesaba, NWA quarrel over payments
November 9, 2005
Mesaba Airlines relies on Northwest Airlines for 93 percent of its revenue, and Northwest relies on Mesaba to transport travelers from more than 100 cities to the bigger carrier's hubs in the Twin Cities, Detroit and Memphis.
But bankruptcy at both airlines is putting that mutual dependence to the test.
Mesaba sued Northwest Monday over $5.2 million the regional carrier says it is owed. Mesaba also has asked a U.S. Bankruptcy Court to bar Northwest from making further deductions from its flight services payments to Mesaba. A hearing on the court complaint is scheduled for Thursday.
Mesaba President John Spanjers briefly explained the disagreement Tuesday during a one-hour conference call with employees.
Despite the dispute, Spanjers struck a conciliatory tone.
While Mesaba executives shape the company's business plan, he said, "Clearly our first objective is to be a successful and strong partner with Northwest Airlines."
Northwest filed its Chapter 11 bankruptcy petition Sept. 14. It has not paid Mesaba about $30 million for flight services that Mesaba provided under an agreement signed in late August. Northwest also has told Mesaba that it will take at least 19 airplanes out of its fleet by January.
Those skipped payments and fleet reductions sent Eagan-based Mesaba into bankruptcy court on Oct. 13. Under a bankruptcy provision that allows a company to halt some payments for 60 days, Mesaba withheld payments to Northwest for subleasing airplanes.
Mesaba does not plan to make the plane sublease payments to Northwest for two months, Mesaba spokeswoman Elizabeth Costello said Tuesday.
"Northwest took advantage of those same rights in its Chapter 11 case," Costello said.
In response, Northwest deducted those missed Mesaba subleasing payments when it paid Mesaba for flight services. If Northwest penalizes Mesaba for missing more airplane payments, it would mean $10.9 million in lost revenue by mid-December, Mesaba said in its court filing.
In a certified letter to Northwest, Spanjers asked Northwest to remit payments for the amounts "setoff for aircraft sublease payments" after Mesaba's bankruptcy filing. It also asked Northwest to "confirm in writing that it will not setoff any future aircraft sublease payments through Dec. 12."
Northwest did not respond to Mesaba's demand for payment and assurances, so Mesaba filed a court complaint on Monday.
A Northwest spokesman declined Tuesday to comment on the litigation.
In his session with employees, Spanjers stressed that there has been a "lot of dialog with Northwest" in recent weeks over Mesaba's fleet.
At the time of the bankruptcy filing, Mesaba had 100 airplanes. Northwest already has taken nine 69-seat Avros out of the fleet, and is preparing to remove 10 Saab turboprops by January.
The 26 remaining Avro jets flown by Mesaba are currently in Northwest's January flight schedule, Spanjers said. But there has not been a final decision on the fate of the Avros because Northwest still is negotiating lease terms with BAE Systems, he said.
The Saab turboprops will be reduced over time, which is why Mesaba executives were excited about adding 15 new Canadair Regional Jets (CRJs) to the fleet, Spanjers said.
Northwest made the 15-jet commitment earlier this year, but two CRJs have been delivered to Mesaba and plans for the other planes have been put on hold.
One pilot told Spanjers in the conference call that early-2005 news about the new CRJs created "six months of happiness" at Mesaba. Now, with bankruptcies at Northwest and Mesaba, he said people feel like they've entered "long-term depression."
Spanjers told employees that they didn't do anything to cause the bankruptcy and had turned in an excellent operational performance for Northwest. Instead, Spanjers said, "We are caught up in the restructuring of the airline industry."
In recent weeks, about 70 jobs were cut at Mesaba through voluntary and involuntary furloughs. Spanjers said more job reductions and pay cuts are coming, but he didn't provide any estimates.
Tom Schmidt, Mesaba's vice president of finance, told employees that the company will attempt to reduce its cost per seat-mile flown by 20 to 25 percent.
When the carrier's new business plan is crafted, Spanjers said, it will be presented to the court and the unsecured creditors committee. That body consists of BAE Systems Regional Aircraft, Messier Services Inc., the Air Line Pilots Association, AAR Aircraft and Turbine, Aircraft Braking Systems, Pan Am International Flight Academy and Aerospace Composite Tech.
Mesaba Airlines relies on Northwest Airlines for 93 percent of its revenue, and Northwest relies on Mesaba to transport travelers from more than 100 cities to the bigger carrier's hubs in the Twin Cities, Detroit and Memphis.
But bankruptcy at both airlines is putting that mutual dependence to the test.
Mesaba sued Northwest Monday over $5.2 million the regional carrier says it is owed. Mesaba also has asked a U.S. Bankruptcy Court to bar Northwest from making further deductions from its flight services payments to Mesaba. A hearing on the court complaint is scheduled for Thursday.
Mesaba President John Spanjers briefly explained the disagreement Tuesday during a one-hour conference call with employees.
Despite the dispute, Spanjers struck a conciliatory tone.
While Mesaba executives shape the company's business plan, he said, "Clearly our first objective is to be a successful and strong partner with Northwest Airlines."
Northwest filed its Chapter 11 bankruptcy petition Sept. 14. It has not paid Mesaba about $30 million for flight services that Mesaba provided under an agreement signed in late August. Northwest also has told Mesaba that it will take at least 19 airplanes out of its fleet by January.
Those skipped payments and fleet reductions sent Eagan-based Mesaba into bankruptcy court on Oct. 13. Under a bankruptcy provision that allows a company to halt some payments for 60 days, Mesaba withheld payments to Northwest for subleasing airplanes.
Mesaba does not plan to make the plane sublease payments to Northwest for two months, Mesaba spokeswoman Elizabeth Costello said Tuesday.
"Northwest took advantage of those same rights in its Chapter 11 case," Costello said.
In response, Northwest deducted those missed Mesaba subleasing payments when it paid Mesaba for flight services. If Northwest penalizes Mesaba for missing more airplane payments, it would mean $10.9 million in lost revenue by mid-December, Mesaba said in its court filing.
In a certified letter to Northwest, Spanjers asked Northwest to remit payments for the amounts "setoff for aircraft sublease payments" after Mesaba's bankruptcy filing. It also asked Northwest to "confirm in writing that it will not setoff any future aircraft sublease payments through Dec. 12."
Northwest did not respond to Mesaba's demand for payment and assurances, so Mesaba filed a court complaint on Monday.
A Northwest spokesman declined Tuesday to comment on the litigation.
In his session with employees, Spanjers stressed that there has been a "lot of dialog with Northwest" in recent weeks over Mesaba's fleet.
At the time of the bankruptcy filing, Mesaba had 100 airplanes. Northwest already has taken nine 69-seat Avros out of the fleet, and is preparing to remove 10 Saab turboprops by January.
The 26 remaining Avro jets flown by Mesaba are currently in Northwest's January flight schedule, Spanjers said. But there has not been a final decision on the fate of the Avros because Northwest still is negotiating lease terms with BAE Systems, he said.
The Saab turboprops will be reduced over time, which is why Mesaba executives were excited about adding 15 new Canadair Regional Jets (CRJs) to the fleet, Spanjers said.
Northwest made the 15-jet commitment earlier this year, but two CRJs have been delivered to Mesaba and plans for the other planes have been put on hold.
One pilot told Spanjers in the conference call that early-2005 news about the new CRJs created "six months of happiness" at Mesaba. Now, with bankruptcies at Northwest and Mesaba, he said people feel like they've entered "long-term depression."
Spanjers told employees that they didn't do anything to cause the bankruptcy and had turned in an excellent operational performance for Northwest. Instead, Spanjers said, "We are caught up in the restructuring of the airline industry."
In recent weeks, about 70 jobs were cut at Mesaba through voluntary and involuntary furloughs. Spanjers said more job reductions and pay cuts are coming, but he didn't provide any estimates.
Tom Schmidt, Mesaba's vice president of finance, told employees that the company will attempt to reduce its cost per seat-mile flown by 20 to 25 percent.
When the carrier's new business plan is crafted, Spanjers said, it will be presented to the court and the unsecured creditors committee. That body consists of BAE Systems Regional Aircraft, Messier Services Inc., the Air Line Pilots Association, AAR Aircraft and Turbine, Aircraft Braking Systems, Pan Am International Flight Academy and Aerospace Composite Tech.
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