ITEM 1. BUSINESS
Mesaba Holdings, Inc. ("Mesaba Holdings" or the "Company") is the holding company for Mesaba Aviation, Inc. ("Mesaba"). Mesaba is a regional airline currently providing scheduled passenger service under the name "Mesaba Airlines/Northwest Airlink" to 60 cities and metropolitan areas in Minnesota, Iowa, Nebraska, New York, North Dakota, South Dakota, Indiana, Wisconsin, Illinois, Michigan, Ohio, Pennsylvania, Kentucky, Tennessee, West Virginia, Virginia and the Province of Ontario, Canada. All flights currently operated by Mesaba are designated as Northwest Airlines flights under the Airlink Agreement with Northwest Airlines, Inc. ("Northwest"). Mesaba's flight schedules are coordinated with those of Northwest to facilitate interline connections at the Minneapolis/Saint Paul International Airport and the Detroit Metropolitan Airport.
On March 7, 1996, Mesaba entered into a preliminary agreement with Saab Aircraft of America, Inc. ("Saab") for the acquisition of 30 new Saab 340BPlus aircraft and 20 used Saab 340A aircraft. These aircraft are expected to be phased into service over the next 2-1/2 years to replace Mesaba's existing fleet of 25 deHavilland Dash 8 and 26 Fairchild Metro III aircraft. The Company also entered into an option agreement for 10 additional new Saab 340BPlus aircraft and 12 additional used Saab 340A aircraft.
On September 7, 1995, the Company distributed to its shareholders, other than Northwest, 100% of the outstanding shares of common stock of its subsidiary, Airways Corporation, to complete the spinoff previously approved by the Company's shareholders at a special meeting held on August 29, 1995. The Company also changed its name to Mesaba Holdings, Inc. from AirTran Corporation on August 29, 1995.
NORTHWEST AIRLINK AGREEMENT
Effective December 1, 1984, Mesaba entered into a cooperative marketing agreement with Northwest. The agreement was restated as the Airline Services Agreement, dated as of September 15, 1988 and made effective December 10, 1988, to include service to and from Northwest's hub airport at Detroit, Michigan. Mesaba and Northwest subsequently amended the Airline Services Agreement effective April 1, 1992 and January 1, 1996 (as amended, the "Airlink Agreement") to provide, among other things, a five-year contract extension to March 31, 1997, exclusive rights to designated service areas and support in acquiring new aircraft and equipment. Currently, approximately 71% of all of Mesaba's passengers connect with Northwest flights, either at Minneapolis/Saint Paul, Minnesota or Detroit, Michigan.
Under the Airlink Agreement, all flights that Mesaba currently operates are designated as Northwest flights using Northwest's designator code in all computer reservations systems, including the Official Airline Guide, with an asterisk and a footnote indicating that Mesaba is the carrier providing the service. In addition, flight schedules of Mesaba and Northwest are closely coordinated to facilitate interline connections, and Mesaba's passenger gate facilities at the Minneapolis/Saint Paul International Airport and Detroit Metropolitan Airport are integrated with Northwest's facilities in the main terminal buildings. Its agreement with Northwest also permits Mesaba to offer its passengers fares between the cities serviced by Mesaba and all of the destinations served by Northwest as well as participation in Northwest's frequent flyer program. Mesaba's aircraft are painted the colors of Northwest Airlines in a distinctive "Northwest Airlink" configuration, with a Northwest Airlines logo in addition to Mesaba's name.
Mesaba, through the Airlink Agreement and other agreements, receives ticketing and certain check-in, baggage and freight handling services from Northwest at certain airports. In addition, Mesaba receives its computerized reservations services from Northwest. Northwest also performs all marketing schedules and yield management and pricing services for Mesaba's flights.
The Airlink Agreement extends through March 31, 1997, and continues indefinitely thereafter, subject to termination by either party on eight months' notice given any time after July 31, 1996. The
January 1, 1996 amendment to the Airlink Agreement sets forth a revised compensation methodology for the period from January 1, 1996 through March 31, 1997. The Airlink Agreement is binding upon the successors and assigns of Northwest and Mesaba. Mesaba is negotiating with Northwest to extend the Airlink Agreement to provide for a term of not less than 10 years. See "Agreement with Northwest Relating to Distribution of Subsidiary" below.
Mesaba believes that its competitive position is enhanced as a result of its marketing and other agreements with Northwest, particularly through the ability of Mesaba to offer its passengers coordinated flight schedules to the destinations served by Northwest. Loss of Mesaba's affiliation with Northwest or Northwest's failure to materially perform under the Airlink Agreement for any reason would have a material adverse effect on the Company's operations and financial position.
AGREEMENT WITH NORTHWEST RELATING TO DISTRIBUTION OF SUBSIDIARY
The Company, Mesaba and Northwest are parties to an Agreement dated May 18, 1995 (the "Distribution Agreement") relating to the spinoff from the Company of its Airways Corporation ("Airways") subsidiary, which occurred on September 7, 1995 (the "Spinoff").
The Distribution Agreement requires Northwest and Mesaba to enter into good faith negotiations to amend the Airlink Agreement to provide for a term of not less than 10 years. Mesaba is currently in negotiations with Northwest pertaining to that amendment.
The Distribution Agreement gives Northwest the right to determine, at its discretion, all schedules and aircraft routing for Mesaba's flights departing on and after the Spinoff date. In consideration for allowing Northwest control over scheduling and routing, Northwest agreed to make quarterly payments to Mesaba which, together with payments under the Airlink Agreement, will guarantee that Mesaba's pre-tax income through March 31, 1997 will be not less than the following amounts:
Minimum Quarter Ending Pre-tax Income -------------- --------------
September 30, 1995 $4,221,000 December 31, 1995 2,219,000 March 31, 1996 1,176,000 June 30, 1996 2,384,000 September 30, 1996 4,221,000 December 31, 1996 2,219,000 March 31, 1997 1,176,000
No guarantee payments have been required through the year ended March 31, 1996.
Pursuant to the Distribution Agreement, Northwest exercised stock purchase warrants to purchase 1,499,078 shares of the Company's Common Stock for an aggregate cash price of $4,477,563. In lieu of receiving its pro rata distribution of 1,719,134 shares of Airways Common Stock in the Spinoff, Northwest was issued additional shares of Company Common Stock in a private placement transaction, which resulted in ownership by Northwest of 29.7% of the Company's Common Stock issued and outstanding immediately following the Spinoff date.
Prior to the Spinoff date, the Company and Mesaba made additional capital contributions to Airways and its subsidiary consisting of cash, tax sharing payments, and other assets having a total book value of $20.25 million. In addition, the Company made capital contributions to AirTran Airways totaling $8.75 million during fiscal 1995. The Distribution Agreement also provided for the designation by Northwest of three members of the Boards of Directors of the Company and Mesaba and for the resignation from the Company of certain of its executive officers and directors. So long as the income guarantee described above remains in effect, the Chief Executive Officer of Mesaba must be reasonably acceptable to Northwest.
The Distribution Agreement also resolved certain cost disputes between Northwest and Mesaba relating to the sharing of Mesaba's operating cost increases and payment of holding company costs, resulting in net cash payments by Northwest to Mesaba of $443,595.
ROUTE SYSTEM
The following tables set forth certain information with respect to Mesaba's scheduled route system for June 1996.
Number of Nonstop air roundtrips mileage from Date from Minneapolis/ airline Minneapolis/ Saint Paul service Saint Paul City Airport commenced per week ---- ------- --------- --------
Minneapolis/ Saint Paul, MN --- February 15, 1973 -- Grand Rapids, MN 161 February 15, 1973 34 Brainerd, MN 113 February 1, 1981 49 Pierre, SD 350 December 15, 1983 20 Sioux Falls, SD 197 December 15, 1983 13 Bemidji, MN 199 December 1, 1984 42 Thief River Falls, MN 261 May 15, 1985 21 Aberdeen, SD 257 December 15, 1985 27 Des Moines, IA 232 June 1, 1986 28 Wausau, WI 175 June 15, 1986 47 Lincoln, NE 332 October 1, 1986 26 Grand Forks, ND 284 October 1, 1986 19 Watertown, SD 193 October 1, 1986 34 Fargo, ND 223 January 15, 1987 14 Omaha, NE 282 June 1, 1987 7 Moline, IL 274 June 10, 1988 38 Houghton/Hancock, MI 277 February 22, 1989 35 Marquette, MI 296 February 22, 1989 21 LaCrosse, WI 120 January 31, 1991 47 Bloomington, IL 374 September 15, 1992 20 Champaign, IL 419 January 31, 1993 13 Thunder Bay, Ontario 304 March 16, 1993 20 St. Cloud, MN 67 July 1, 1993 54 Escanaba, MI 304 August 16, 1993 14 Fergus Falls, MN 168 October 30, 1994 19 Ely, MN 213 May 26, 1995 10 Bismarck, ND 386 September 1, 1995 6 Kalamazoo, MI 426 November 1, 1995 26 Rochester, MN 76 April 1, 1996 27
Nonstop air Date Number of mileage from airline from Detroit service Detroit City Airport commenced per week ---- ------- --------- --------
Detroit, MI --- December 10, 1988 --- Erie, PA 163 December 10, 1988 27 Akron/Canton, OH 134 December 10, 1988 32 Dayton, OH 166 December 10, 1988 20 Flint, MI 56 January 8, 1989 71 Traverse City, MI 207 January 8, 1989 34 Pellston, MI 242 January 8, 1989 55 Wausau, WI 363 January 8, 1989 20 Houghton/Hancock, MI 425 February 22, 1989 20 Marquette, MI 364 February 22, 1989 28 Toledo, OH 49 April 2, 1989 60 Muskegon, MI 161 October 11, 1989 34 Columbus, OH 155 August 1, 1990 7 Kalamazoo, MI 113 September 6, 1990 26 Cincinnati, OH 229 September 6, 1990 19 Lansing, MI 74 November 14, 1990 26 Youngstown, OH 153 May 1, 1991 19 Fort Wayne, IN 128 June 1, 1991 21 Lexington, KY 296 June 10, 1991 26 Charleston, WV 281 July 8, 1991 34 London, ON 125 September 5, 1991 25 Binghamton, NY 378 July 1, 1992 32 Roanoke, VA 382 August 1, 1992 33 Lafayette, IN 224 September 9, 1992 25 Bloomington, IL 314 September 15, 1992 25 South Bend, IN 157 November 16, 1992 21 Louisville, KY 306 June 1, 1993 7 Escanaba, MI 305 August 16, 1993 33 Champaign, IL 298 September 9, 1993 35 Evansville, IN 364 October 1, 1993 24 Knoxville, TN 443 October 1, 1993 13 State College, PA 300 January 31, 1994 28 Saginaw, MI 98 June 1, 1995 6 Benton Harbor, MI 158 June 20, 1995 19 Harrisburgh, PA 370 December 1, 1994 7 Ottawa, Ontario 439 May 1, 1995 14 Elmira, NY 331 November 15, 1995 26 Allentown, PA 424 December 15, 1995 6 Cleveland, OH 95 December 15, 1995 7
The average segment length of Mesaba's route system is approximately 204 statute miles. Mesaba and Northwest continually review and analyze Mesaba's route structure to make adjustments in flight schedules and to consider the addition or deletion of routes. From time to time Mesaba and Northwest review the feasibility of expanding the frequency of Mesaba's service to airports currently being served, as well as initiating passenger service to additional cities generally within Mesaba's service area. Mesaba works closely with Northwest to coordinate flight schedules and to facilitate connections between Mesaba and Northwest. See "Business -- Northwest Airlink Agreement."
AIRCRAFT
The following table sets forth certain information as to Mesaba's passenger aircraft fleet as of June 1, 1996:
Approximate Approximate single average flight cruising Type of Number of Seating range speed aircraft aircraft capacity (Miles) (M.P.H.) -------- -------- -------- ------- -------- Fairchild Metro III 26 19 650 300 deHavilland Dash 8 25 37 500 285 Saab 340A 2 30 550 290
Mesaba sub-leases its deHavilland Dash 8 aircraft from Northwest Aircraft under operating leases with terms of up to five years. The Airlink Agreement allows Mesaba to return aircraft to Northwest upon the occurrence of certain events. The Dash 8 aircraft are pressurized turboprop airplanes with galleys, standup headroom, lavatories, radar, ground proximity warning, traffic collision avoidance and de-icing systems.
Mesaba leases all of its Fairchild Metro III aircraft, either directly from aircraft leasing companies or through sub-leases with Northwest Aircraft. The Fairchild Metro III aircraft are fast, fuel-efficient, pressurized turboprop airplanes with radar, ground proximity warning, traffic collision avoidance and de-icing systems.
Mesaba intends to replace its existing fleet of Dash 8 and Metro III aircraft over the course of the next 2-1/2 years. On March 7, 1996, Mesaba entered into a preliminary agreement with Saab for the acquisition of 30 new Saab 340BPlus 34-seat aircraft and 20 used Saab 340A 30-seat aircraft. The preliminary agreement also provides options to acquire an additional 10 new and 12 used Saab 340 aircraft. Mesaba took delivery of the first two Saab aircraft in May 1996 under operating leases and the remaining aircraft are to be delivered at a rate of approximately two per month thereafter unless Saab and Mesaba agree otherwise. Under the terms of the preliminary agreement, at least 17 new Saab 340BPlus aircraft are to be delivered by December 31, 1997. Mesaba intends to lease the aircraft from leasing companies and from Northwest Aircraft, Inc. under sub-leases. The Saab 340 aircraft are fast, fuel efficient, pressurized turboprop airplanes with galleys, standup headroom, lavatories, radar, ground proximity warning, traffic collision avoidance and de-icing systems.
All of Mesaba's aircraft comply fully with all Federal Aviation Regulations ("FARs") issued by the Federal Aviation Administration ("FAA").
Mesaba's existing fleet of Dash 8 and Metro III aircraft have remaining lease terms of two months to 42 months and aggregate monthly lease payments of approximately $2,500,000. Mesaba returned its last remaining Fokker aircraft to the lessor in October 1995.
COMPETITION
The airline industry is highly competitive as a result of the Airline Deregulation Act of 1978 (the "Deregulation Act"). In general, the Deregulation Act increased competition by eliminating restrictions on fares and route selection. The Deregulation Act also contributed to the withdrawal of national and major carriers from short-haul markets by allowing them to more easily obtain additional long-haul routes, which can be more efficiently and profitably served by jet aircraft. Elimination of barriers to entry into new markets, however, also creates greater potential for competing service by other carriers operating small, fuel-efficient aircraft on short-haul routes serving small and medium-sized cities. Mesaba currently competes with other regional airlines in some of the cities it serves and competition to alternative hubs for connecting flights exists out of many of the markets Mesaba serves. However, due to the consolidation of the airline industry and the development of the "hub and spoke" network, Mesaba has experienced a reduction of competition in its
specific market segments. No assurance can be given that other carriers, including major carriers, will not institute competing service on routes served by Mesaba.
Competitive factors in the airline industry generally include fares, frequency and dependability of service, convenience of flight schedules, type of aircraft flown, airports served, relationships with travel agents, and efficiency and reliability of reservations systems and ticketing services. The compatibility of flight schedules with those of other airlines and the ability to offer through fares and convenient inter-airline flight connections are also important competitive factors. The Company believes that Mesaba is competitive with respect to each of such factors because of its established reputation, operating reliability, aircraft fleet which is properly suited for the small and medium-sized cities served, and especially its relationship with Northwest.
FUEL
The cost of aviation fuel is one of the Company's largest operating expenses, accounting for 11% of total operating costs for the year ended March 31, 1996, 11% the year ended March 31, 1995, and 12% for the year ended March 31, 1994.
The Company has arrangements with Northwest and seven major fuel suppliers for substantial portions of its fuel requirements. The Company believes that such arrangements assure an adequate supply of fuel for current and anticipated future operations. Both the cost and availability of fuel, however, are subject to factors beyond the control of the Company. Certain provisions of the amended Airlink Agreement protect Mesaba from future increases in aviation fuel prices.
FARES
Mesaba derives its passenger revenues from Northwest in accordance with an agreed upon formula. Under the Airlink Agreement, Mesaba has the ability to enter into arrangements with other air carriers for proration of fares for service to cities not served by Northwest, so long as Mesaba does not use the "NW" designator code or Dash 8 airplanes with respect to such service. Fares vary primarily in relation to the length of the flight and other factors.
REGULATION
Pursuant to the Federal Aviation Act of 1958, as amended (the "Aviation Act"), the federal Department of Transportation ("DOT"), principally through the FAA, has certain regulatory authority over the operations of all air carriers. The jurisdiction of the FAA extends primarily to the safety and operational provisions of the Aviation Act, while the responsibility of the DOT involves principally the regulation of certain economic aspects of airline operations.
FAA REGULATION. Mesaba holds an "Air Carrier Operating Certificate" from the FAA permitting it to conduct flight operations in compliance with applicable FAA regulations. Effective July 5, 1984, Mesaba was certified as a "domestic air carrier," permitting it to operate aircraft with seating capacity greater than 30 passengers under FAA Regulations, Part 121, the same regulatory requirements applied to major airlines. The Part 121 regulations include stricter safety standards than those applying to airlines operating aircraft with 30 or fewer seats. The FAA regulations to which Mesaba is subject are extensive and include, among other items, regulation of aircraft maintenance and operations, equipment, ground facilities, dispatch, communications, training, weather observation, flight personnel and other matters affecting air safety. To ensure compliance with its regulations, the FAA requires airlines to obtain operating, airworthiness and other certificates that are subject to suspension or revocation for cause. Mesaba holds all certificates necessary for its operations.
DOT REGULATION. Prior to October, 1992, Mesaba was registered under Part 298 of the economic regulations of the DOT. On October 26, 1992, the DOT granted Mesaba a Certificate of Public Convenience and Necessity under Section 401 of the Aviation Act. As a certificated carrier, Mesaba is required to file certain additional quarterly reports with the DOT, including a report of aircraft operating expenses and related
statistics. The Certificate of Public Convenience and Necessity is a prerequisite for operations with aircraft larger than 60 seats.
OTHER REGULATION. Under the Noise Control Act of 1972 and the Aviation Safety and Noise Abatement Act of 1979, the FAA has authority to monitor and regulate aircraft engine noise. Management of the Company believes that Mesaba's aircraft comply with or are exempt from such regulations and that Mesaba complies with standards for aircraft exhaust emissions and fuel storage facilities issued by the Environmental Protection Agency. The Company is also required to comply with the drug testing program adopted under Part 14 CFR by the DOT. As a foreign carrier operating in Canada, the Company is subject to regulation by the Canadian Department of Transport and has been issued Foreign Air Carrier Operating Certificates by such agency.
INSURANCE
Mesaba carries the types of insurance customary in the airline industry, including coverage for public liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers' compensation. The Company believes that this insurance is adequate as to amounts and risks covered. There can be no assurance, however, that the insurance carried would be sufficient to protect the Company adequately in the event of a catastrophic accident.
AIRCRAFT MAINTENANCE
Mesaba employs its own aircraft, avionics and engine maintenance staff that performs substantially all maintenance to its aircraft and engines, except for major overhauls on the airframes, engines, and other rotable parts on its Dash 8 Aircraft. Major overhauls on the Dash 8 aircraft are performed at FAA authorized facilities. Major overhauls of the Metro III aircraft are performed internally.
AIRPORT AND TERMINAL FACILITIES AND SERVICES
Mesaba's ticket counter and baggage handling space is leased from local airport authorities or other airlines at all of the airports served. In 24 of the cities it serves, Mesaba receives support service under agreements with Northwest. The duration of the leases and service agreements vary.
Mesaba pays local airport authorities for the use of landing fields at rates that are based on the number of flights per day, fixed fees, or on the number of aircraft landings and aircraft weight.
PROPERTIES
The Company's principal executive offices are located at the Minneapolis/Saint Paul International Airport. Mesaba leases approximately 293,000 square feet of facilities, ramp, parking and unimproved land at the Airport under separate ground and facilities leases with the Metropolitan Airports Commission. The lease expires on December 31, 2008 and provides that Mesaba will have a right of first refusal on any new lease covering the premises. Mesaba's primary facility contains approximately 83,000 square feet of office, shop, and hangar space. Mesaba is obligated to make payments of approximately $35,000 per month under the lease for the hangar, office and maintenance facility, in addition to approximately $13,000 per month under the ground lease for the underlying land and access ramp.
Mesaba leases approximately 394,000 square feet of facilities, ramp, parking and unimproved land at the Detroit Metropolitan Airport under separate ground and facilities leases. The facilities lease covers approximately 45,000 square feet of hangar and maintenance space and obligates Mesaba to pay monthly rentals ranging between approximately $22,000 and $36,000 until August 1, 2002 as part of Special Facilities Bond financing provided by Wayne County, Michigan. The ground lease has a 20-year term concurrent with the facilities lease which expires August 1, 2010. Monthly lease payments of approximately $7,000 are currently required under the ground lease, subject to an annual adjustment on January 1 each year based upon
the percentage change in an index published by the Bureau of Labor Statistics of the U.S. Department of Commerce.
Mesaba owns approximately 38,000 square feet of hangar and office space located on approximately 102,000 square feet of land and parking areas of which Mesaba is ground lessee, at the Central Wisconsin Airport in Mosinee, Wisconsin. Mesaba pays approximately $800 per month under the terms of the ground lease relating to such facility, which expires on December 31, 2011, subject to two 10-year renewal options.
EMPLOYEES
As of June, 1996, Mesaba employed 1,543 persons, of whom 486 were pilots, 186 were management, administrative and clerical personnel, 175 were aircraft maintenance personnel, 572 were station managers, station agents and line services personnel, and 124 were flight attendants. Approximately 370 of Mesaba's employees are part-time.
Mesaba's pilots are represented by the Air Line Pilots Association ("ALPA"). Mesaba has concluded negotiations with ALPA and has reached a new collective bargaining agreement effective July 1, 1996, with a term of four years. None of Mesaba's other employees are represented by a union. However, Mesaba has been notified by the National Mediation Board that an election involving the aircraft mechanics will be held in July 1996 to determine whether the aircraft mechanics will gain representation by a union. If the mechanics vote in favor of union representation, it is likely that the Aircraft Mechanics Fraternal Association would be their representative. Any work stoppage, whether from a failure to enter into a new collective bargaining agreement or otherwise, could have a material adverse impact on the Company.
Mesaba has had no work stoppages and management believes that its relations with its employees are good.
CYCLICALITY AND SEASONALITY
The airline industry generally is subject to cyclical moves in the economy. Because both personal discretionary travel and business travel may be expected to decline during periods of economic weakness, the airline industry tends to experience poorer financial results during such periods. Further, because the Company serves primarily the North Central region, its results may be affected to a greater extent by regional economic variations than the results of air carriers with national operations.
Seasonal factors, primarily weather conditions and passenger demand, historically have affected Mesaba's monthly passenger boardings. The first and second fiscal quarters have typically shown a higher level of passenger boardings as compared with the third and fourth quarters for many of the cities served by Mesaba. As a result of such factors, the Company's revenues and earnings historically have been higher during the first six months of the fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive officers of Mesaba Holdings and Mesaba, a subsidiary of Mesaba Holdings. Officer Name Age Position since ---- --- -------- -----
Carl R. Pohlad 80 Chairman of Mesaba Holdings and Mesaba 1995
Bryan K. Bedford 34 President and Chief Executive Officer of Mesaba Holdings and Mesaba 1995
John S. Fredericksen 47 Vice President, Administration, General Counsel and Assistant Secretary of Mesaba Holdings and Mesaba 1992
F. Darrell Richardson 50 Vice President and Chief Operating Officer of Mesaba 1995
CARL R. POHLAD is a Class Two director and Chairman of the Board of Directors. Mr. Pohlad has been President and a director of Marquette Bancshares, Inc. since 1993. Prior to 1993, Mr. Pohlad served as President and Chief Executive Officer of Marquette Bank Minneapolis and Bank Shares Incorporated. Mr. Pohlad was Chairman of the Board of MEI Corporation from 1972 to 1986, and Chairman of the Board of MEI Diversified Inc. from 1986 to 1994. MEI Diversified Inc. filed for Chapter 11 bankruptcy protection in February 1993 and a Plan of Reorganization was confirmed in October 1994, pursuant to which its assets and liabilities are in the process of being liquidated. Mr. Pohlad is also an owner, director and the President of CRP Sports, Inc., the managing general partner of the Minnesota Twins baseball club, and is a director of Genmar Holdings, Inc.
BRYAN K. BEDFORD is a Class One director and President and Chief Executive Officer of the Company. Mr. Bedford was President and Chief Executive Officer of Business Express, Inc. from February 1994 to August 1995. He served as Executive Vice President and Chief Financial Officer of Phoenix Airline Services, Inc. from July 1992 to January 1994, and as Vice President and Chief Financial Officer of WestAir Holding, Inc. from January 1990 to July 1992. From June 1988 to January 1990, Mr. Bedford was Vice President of Finance of Aspen Airway, Inc.
JOHN S. FREDERICKSEN joined the Company as Vice President, General Counsel in July 1992. In August 1993, Mr. Fredericksen was appointed Senior Vice President, Operations of the Company and Mesaba. He was appointed Secretary of the Company and Mesaba in November 1994. In October 1995, he was appointed to his current positions with the Company and Mesaba. From March 1987 until joining the Company, Mr. Fredericksen was employed by the Regional Airline Association, Washington, D.C., serving most recently as its President. From 1980 until 1987, Mr. Fredericksen was an attorney with the Federal Aviation Administration.
F. DARRELL RICHARDSON joined the Company as Vice President and Chief Operating Officer in September 1995. Mr. Richardson was Senior Vice President, Operations of Phoenix Airline Services, Inc. from November 1993 until joining the Company. He served as President and Chief Operating Officer of United Aerodynamics Corporation from July 1991 to October 1993, and as Vice President of Maintenance and Engineering of Continental Express from June 1989 to June 1991. Prior to June 1989, Mr. Richardson was employed in various positions in the aviation industry, beginning in 1968.
ITEM 2.
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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FOURTH QUARTER OF FISCAL YEAR
There were no matters submitted to a vote of the Company's shareholders during the three-month period ended March 31, 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded under the symbol "MAIR" on the Nasdaq National Market.
The following table sets forth the range of high and low sale prices for the Company's Common Stock and the dividends per share for each of the fiscal quarters of the two years ended March 31, 1996. Quotations for such periods are as reported by Nasdaq for National Market issues.
STOCK QUOTATIONS
Dividends High Low per share ---- --- --------- Fiscal 1995 First quarter $9-1/2 $7 $.03 Second quarter 7-3/4 5-3/4 .03 Third quarter 8 6 .03 Fourth quarter 8-1/2 6-1/8 .03
Fiscal 1996 First quarter $11 $7-1/2 $.03 Second quarter 14 4-7/8 -- Third quarter 8-7/8 4-7/8 -- Fourth quarter 11-1/4 7 --
On November 10, 1995, the Company announced that it would discontinue payment of quarterly dividends. The last dividend of $.03 per share was paid for the quarter ended June 30, 1995. The Company intends to retain earnings for use in the operation of its business.
On June 20, 1996, the number of holders of record of Common Stock was 981.
The transfer agent for the Company's Common Stock is Norwest Bank Minnesota, National Association, 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone: (612) 450-4064.
ITEM 6.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
EARNINGS SUMMARY
The Company reported net income of $56.3 million or $4.81 per share for the fiscal year ended March 31, 1996, compared to $2.6 million or $.29 per share in fiscal 1995 and $3.7 million or $.40 per share in fiscal 1994. The increase in fiscal 1996 net earnings included a non-cash $49.3 million gain resulting from the Spin-off of Airways. Net income per share without the gain was $.60 on 11.7 million fully diluted weighted average shares outstanding, including a $.02 contribution from Airways. The $.29 per share earnings in the prior year on 9.1 million weighted average shares outstanding included a $.38 per share loss from Airways. The increase in the average number of shares outstanding was due primarily to the issuance of shares to Northwest Aircraft in lieu of Airways shares, Northwest exercising pre-existing warrants, and the exercise of stock options by current and former employees.
RESULTS OF OPERATIONS
OPERATING REVENUES. Operating revenues rose 16.9% to $170.5 million in fiscal 1996 from $145.9 million in fiscal 1995 and $129.6 million in fiscal 1994. Operating revenues for fiscal 1996 and 1995 included revenues from Airways of $18.7 million and $9.6 million, respectively. Mesaba's revenues increased 11.4% in 1996 to $151.8 million from $136.3 million in 1995. This increase is attributable to a 9.5% increase in revenue passenger miles to 344.6 million and a 1.4% increase in yield per revenue passenger mile to $.434. Mesaba's average passenger load factor was 47.1% in 1996, up from 44.6% in 1995 and 45.1% in 1994.
OPERATING EXPENSES. Total operating expenses increased 11.7% to $158.1 million in 1996 from $141.5 million in 1995 and $123.0 million in 1994. Operating expenses for 1996 and 1995 included expenses from Airways of $18.7 million and $16.0 million, respectively. Mesaba's operating expenses increased 11.1% in 1996 to $139.4 million from $125.5 million and 2.0% in 1995. Mesaba experienced a 6.7% increase in the cost per available seat mile (ASM) to 19.0 cents compared with 17.8 cents in 1995. Seat capacity (measured in ASMs) increased 3.8% in 1996 to 732.0 million. During fiscal 1996, Mesaba eliminated its fleet which consisted of one aircraft, and increased the utilization of its remaining fleet of Dash 8 and Metro III aircraft to compensate for the decreased capacity. The following table compares components of Mesaba's operating cost per ASM for the years ended March 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Labor and related 6.0CENTS 5.4CENTS 5.3CENTS Fuel 2.0 2.0 2.2 Direct maintenance 2.4 1.5 1.5 Passenger related 2.0 1.8 1.9 Depreciation, amortization and aircraft rentals 4.7 5.2 6.1 Administrative and other 1.9 1.9 1.5 --- --- --- Total 19.0CENTS 17.8CENTS 18.5CENTS ---------- ---------- --------- ---------- ---------- ---------
Labor and related costs increased to $47.0 million in fiscal 1996 compared to $41.0 million in fiscal 1995 and $35.5 million in 1994. Labor and related costs for 1996 and 1995 included expenses of Airways of $3.1 million and $2.8 million, respectively. Mesaba's labor and related costs increased 14.9% to $43.9 million from $38.2 million in fiscal 1995. Approximately 33% of the increase was attributable to flight crew labor and maintenance labor cost increases due primarily to the 10% increase in block hours flown. Additionally, severance expense, paid primarily to former executives, accounted for approximately 19% of Mesaba's total increase in labor costs. Overall, personnel levels (measured on a full time
equivalent basis at the fiscal year end) increased 4.5% to approximately 1,458 from 1,395, with the remaining increase due to normal wage and benefit increases.
Total fuel costs were $17.7 million in fiscal 1996, $16.0 million in fiscal 1995 and $14.4 million in fiscal 1994. Airways total fuel expense was $2.9 million in 1996 and $2.2 million in 1995. Mesaba's fuel costs increased 7.7% to $14.8 million. Fuel consumption increased 5% in 1996 and was flat in 1995. The average price per gallon, including taxes and into plane fees, was 80 cents in fiscal 1996 compared to 78 cents in fiscal 1995 and 82 cents in fiscal 1994. Until October 1995, airlines were exempt from a 4.3 cents per gallon federal tax on aviation fuel. The additional taxes increased Mesaba's fuel costs by $.4 million in fiscal 1996. Certain provisions of the Airlink Agreement protect Mesaba from future increases in fuel prices.
Direct maintenance expense, excluding labor and related costs, increased to $20.0 million in fiscal 1996 from $11.5 million in fiscal 1995 and $10.2 million in fiscal 1994. Airways' direct maintenance expense was $2.2 million in 1996 and $1.0 million in 1995. Mesaba's direct maintenance cost increased 69.5% to $17.8 million from $10.5 million. This increase was attributable to increased fleet utilization of the Metro III and Dash 8 aircraft, a substantial reduction of the number of Dash 8 aircraft under warranty and an increase in heavy airframe inspections of the Dash 8 fleet. Also, under the terms of the Airlink Agreement, effective January 1, 1996, Mesaba became solely responsible for all costs of major overhauls and repairs on the Dash 8 fleet. Prior to that date, those expenses were paid directly by Northwest.
Passenger related expenses increased to $18.3 million in fiscal 1996 from $15.5 million in fiscal 1995 and $12.4 million in fiscal 1994. Airways' passenger related expense totaled $3.4 million in 1996 and $2.6 million in 1995. Mesaba's passenger related expense increased 15.2% in 1996 to $14.9 million. Higher traffic volume and increased passenger liability insurance, combined with increased airport user charges, accounted for the increase.
Depreciation and amortization totaled $5.1 million in fiscal 1996 compared to $6.1 million in fiscal 1995 and $7.5 million in fiscal 1994. Airways' depreciation and amortization totaled $.9 million in 1996 and $.5 million is 1995. Mesaba's depreciation and amortization decreased 23.8% to $4.2 million, due to decreased equipment purchases and capitalized overhauls as part of the phase out of the fleet. In April 1992, the Company paid a contract rights fee in the form of amended stock purchase warrants to Northwest as part of the extension of the Airlink Agreement. Contract rights are being amortized on a straight-line basis over the extended term of the Airlink Agreement through March 31, 1997.
Aircraft rentals were $31.3 million in fiscal 1996, $32.3 million in fiscal 1995 and $32.9 million in fiscal 1994. Airways' aircraft rentals were $1.5 million in fiscal 1996 and $1.0 million in fiscal 1995. Mesaba's aircraft rentals decreased 4.8% to $29.8 million from $31.3 million. The 1996 decrease in aircraft rentals reflects the turnback of the aircraft and renegotiation of several Metro III leases resulting in lower lease payments.
Administrative and other costs totaled $18.7 million in fiscal 1996, $18.6 million in fiscal 1995 and $9.9 million in fiscal 1994. Airways' administrative and other costs were $4.8 million in 1996 and $5.2 million in 1995. Mesaba's administrative and other costs increased 3.7% in 1996 to $13.9 million from $13.4 million. This increase was due to higher aircraft hull insurance rates, increased spending for flight crew hotel and per diems and increased legal and professional fees associated with the Spinoff of Airways.
OPERATING INCOME. The Company's operating income was $12.3 million in fiscal 1996, $4.4 million in fiscal 1995 and $6.6 million in fiscal 1994. Mesaba's operating income increased 14.8% to $12.4 million in 1996 from $10.8 million in 1995. Mesaba's operating margins were 8.2% in 1996, 7.9% in 1995 and 5.1% in 1994.
PROVISION FOR INCOME TAXES. The provision for income taxes was $5.7 million in fiscal 1996, $2.5 million in fiscal 1995 and $3.0 million in fiscal 1994. The effective tax rate decreased to 45% in 1996 from 49% in 1995 and 45% in 1994. This decrease is due primarily to the lower level of nondeductible expenses as a percentage of taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $27.1 million with a current ratio of 2.6 at March 31, 1996 compared to $29.1 million and 2.7 at March 31, 1995. Cash and short-term investments increased by $2.6 million to $29.4 million at March 31, 1996. Net cash flows provided by operating activities totaled $16.1 million in fiscal 1996 compared to $6.6 million in fiscal 1995. Net cash flows used for financing activities amounted to $9.4 million in fiscal 1996 and consisted of $8.7 million of proceeds from the issuance of common stock, less dividends and principal payments of $.8 million. Funds used for the distribution of Airways Corporation totaled $21.4 million, offset by a $3.8 million decrease of restricted cash related to Airways' air traffic liability. Funds used to acquire a subsidiary in 1995 and to purchase spare parts, equipment and other assets totaled $4.1 million in fiscal 1996, compared to $7.3 million in 1995.
The Company has a $5.0 million revolving line of credit at prime plus one-half of 1%. This credit line was not utilized during fiscal 1996. In addition, a letter of credit facility totaling $.2 million secures a lease commitment to the County of Wayne, Michigan, for the Company's Detroit hangar. All borrowings under the revolving line of credit are collateralized by inventory and accounts receivable.
Long term debt, net of current maturities, totaled $5.7 million at March 31, 1996 and 1995. Long term debt consists principally of capitalized lease financing for the Minneapolis/St. Paul and Detroit hangar facilities. The ratio of long term debt to stockholders' equity was .16 at March 31, 1996 compared to .14 at the end of fiscal 1995.
FAA directives required Mesaba to equip its Metro III fleet with traffic alert and collision avoidance systems (TCAS) by December 31, 1995. Mesaba spent $1.0 million in fiscal 1996 modifying the Metro III fleet to meet these FAA directives. The FAA enacted rules effective March 31, 1997 that require all airlines operating aircraft with 30 passenger seats or less, which are presently operated under FAR Part 135, to begin operating those aircraft under FAR Part 121 regulations, the same regulatory requirements applied to major airlines. Mesaba currently operates all its aircraft under FAR Part 121. Accordingly, the new regulations are not expected to have any material impact on Mesaba's financial position.
At March 31, 1996, Mesaba's fleet consisted of 51 aircraft covered under operating leases with remaining terms of three months to three years and aggregate monthly lease payments of approximately $2.5 million. Operating leases have been the Company's primary method for acquiring aircraft, and management expects to continue relying on this method to meet most of its future aircraft financing needs.
Approximately 71% of Mesaba's passengers connected with Northwest in fiscal 1996, 79% in 1995 and 81% in 1994. Approximately 84% of the Company's accounts receivable balance at March 31, 1996 is due from Northwest. Loss of the Company's affiliation with Northwest or Northwest's failure to make timely payment of amounts owed to the Company or to otherwise materially perform under the Airlink Agreement for any reason would have a material adverse effect on the Company's operations and financial results.
The Company has historically relied upon cash reserves, internally generated funds and borrowings to support its working capital requirements. Management believes that funds from operations and existing credit lines will provide adequate resources for meeting non-aircraft capital needs in fiscal 1997.
Prior to the Spinoff the Company contributed cash and property to Airways having a book value of approximately $20.25 million, which resulted in a corresponding decrease in the cash and other assets of the Company.
Expenses associated with the Spinoff were expensed for financial reporting purposes and charged pursuant to the Distribution Agreement to the party for whose benefit the expenses were incurred. Any expenses which were not allocated on such a basis were split equally between the Company and Airways.
OTHER INFORMATION
On November 10, 1995, the Company announced that it would discontinue payment of quarterly dividends. The last dividend of $0.03 per share was paid for the quarter ended June 30, 1995.
On March 7, 1996, Mesaba entered into an agreement to acquire 20 used Saab 340A aircraft and 30 new Saab 340BPlus aircraft, for a total firm order of 50 aircraft. These aircraft will replace the current fleet of Metro III and Dash 8 aircraft. In addition, Mesaba has options to acquire up to 12 used Saab 340A and up to 10 new Saab 340BPlus aircraft, for a total of 22 option aircraft. Mesaba has also negotiated a financing agreement with the airframe manufacturer whereby operating lease financing for both the used and new aircraft are committed to the Company on competitive rates and terms.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and financial statement schedules of the Company and the related Report of Independent Public Accountants are included in this Form 10-K on the pages indicated below.
PAGE
Report of Independent Public Accountants................................... 22
Consolidated balance sheets as of March 31, 1996 and 1995.................. 23
Consolidated statements of operations for the years ended March 31, 1996, 1995 and 1994.............................. 24
Consolidated statements of shareholders' equity for the years ended March 31, 1996, 1995 and 1994.............................. 25
Consolidated statements of cash flows for the years ended March 31, 1996, 1995 and 1994.............................. 26
Notes to consolidated financial statements................................. 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mesaba Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Mesaba Holdings, Inc. (a Minnesota corporation) and Subsidiary as of March 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mesaba Holdings, Inc. and Subsidiary as of March 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota, May 3, 1996
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets as of March 31 (In Thousands, Except Share Information)
1996 1995 ---------- ---------- ASSETS
CURRENT ASSETS: Cash and short-term investments $29,428 $26,851 Restricted cash - 3,765 Accounts receivable, net 9,254 8,844 Inventories 1,666 4,072 Prepaid expenses and deposits 2,774 962 Deferred income taxes 1,343 1,660 ---------- ---------- Total current assets 44,465 46,154 ---------- ---------- PROPERTY AND EQUIPMENT: Facilities under capital lease 9,147 9,147 Flight equipment 10,439 10,416 Other property and equipment 9,644 10,029 Accumulated depreciation and amortization (16,842) (14,661) ---------- ---------- Net property and equipment 12,388 14,931
DEFERRED INCOME TAXES 312 288
OTHER ASSETS, net 1,039 5,511 ---------- ---------- $58,204 $66,884 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: Current maturities of capital lease obligations $ 399 $ 307 Accounts payable 7,323 7,020 Air traffic liability - 3,628 Accrued liabilities- Payroll 3,871 2,661 Maintenance 3,341 2,015 Other 2,389 1,421 ---------- ---------- Total current liabilities 17,323 17,052
CAPITAL LEASE OBLIGATIONS, net of current maturities 5,654 5,732
OTHER NONCURRENT LIABILITIES, principally accrued maintenance 812 1,656 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY: Common stock, $.01 par value, 15,000,000 shares authorized; 12,744,046 and 8,625,373 shares issued and outstanding, respectively 127 86 Paid-in capital 39,822 13,199 Warrants issued for 1,499,078 common shares exercised in August 1995 - 5,089 Retained earnings (deficit) (5,534) 24,070 ---------- ---------- Total shareholders' equity 34,415 42,444 ---------- ---------- $58,204 $66,884 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated balance sheets.
MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Operations For the Years Ended March 31 (In Thousands, Except Share and Per Share Information)
The accompanying notes are an integral part of these consolidated statements.
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the Years Ended March 31
(In Thousands, Except Per Share Information)
The accompanying notes are an integral part of these consolidated statements.
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended March 31
(In Thousands)
The accompanying notes are an integral part of these consolidated statements.
Exhibit 23
MESABA HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Dollars in Thousands, Except Share and Per Share Information)
1. Corporate Organization and Business:
CORPORATE ORGANIZATION
The consolidated financial statements include the accounts of Mesaba Holdings, Inc. (the "Company") and its subsidiary, Mesaba Aviation, Inc. ("Mesaba"). The statements also include the results of operations of Airways Corporation ("Airways") and its subsidiary Airtran Airways, Inc. ("Airtran Airways") prior to the distribution of 100% of the outstanding common stock of Airways to the Company's shareholders in September 1995 (see Note 8). All significant intercompany balances have been eliminated in consolidation.
BUSINESS
Mesaba operates a regional air carrier providing scheduled passenger and air freight service as Mesaba Airlines/Northwest Airlink under an Airline Services Agreement (the Airlink Agreement) with Northwest Airlines, Inc. (Northwest) to 60 cities in the Upper Midwest from Northwest's hub airports, Minneapolis/Saint Paul and Detroit. The Airlink Agreement provides for exclusive rights to designated service areas and runs through March 31, 1997, automatically renewing indefinitely thereafter. Either party may terminate the Airlink Agreement on eight months notice any time after July 31, 1996. Under the Airlink Agreement, all Mesaba flights appear in Northwest's timetables and Mesaba receives ticketing and certain check-in, baggage and freight-handling services from Northwest at certain airports. In addition, at certain airports Mesaba purchases fuel from Northwest. The Company paid $7,526 to Northwest for fuel, reservation systems, ground handling and other services in fiscal 1996, $3,166 in 1995 and $720 in 1994. The Airlink Agreement provides for certain incentive payments from Northwest to Mesaba based on achievement of certain operational or financial goals, as defined. Such incentives totaled $1,643 in 1996, $1,192 in 1995, and $66 in 1994. Mesaba also benefits from its relationship with Northwest through prorated fare arrangements and advertising and marketing programs. (See Note 8 for additional agreements with Northwest).
Approximately 71% of Mesaba's passengers connected with Northwest in fiscal 1996, 79% in 1995 and 81% in 1994. Approximately 84% of the March 31, 1996 accounts receivable balances in the accompanying consolidated balance sheet are due from Northwest. The Company believes that Northwest's Minneapolis and Detroit hubs will continue to serve as key air traffic centers. Although Mesaba maintains an expanding air system serving those traffic centers, loss of Mesaba's affiliation with Northwest or Northwest's failure to make timely payment of amounts owed to the Company or to otherwise materially perform under the Airlink Agreement would have a material adverse effect on the Company's operations, financial position and cash flows. Northwest and the Company review contract compliance on a periodic basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND SHORT-TERM INVESTMENTS
Short-term investments, which consist primarily of U.S. government securities and interest-bearing deposits with maturities of less than 90 days, are stated at cost, which approximates market. These investments are considered cash equivalents for statement of cash flows purposes. In 1995, restricted cash represented amounts escrowed relating to the Company's air traffic liability associated with Airtran Airways.
INVENTORIES
Inventories are stated at the lower of average cost or market and consist of expendable aircraft service parts, and fuel. Expendable parts are charged to maintenance as used.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line basis for financial reporting purposes over estimated useful lives of 5-10 years for aircraft engines, flight equipment and rotable parts; 3-10 years for all other equipment; 5-36 years for buildings and improvements; and over the lease term for facilities under capital lease. Leasehold improvements are amortized over the shorter of the life of the lease or the life of the asset. Accelerated cost recovery methods of depreciation are applied for tax reporting purposes.
AIRLINK CONTRACT RIGHTS
In connection with the Airlink Agreement, the Company paid a contract rights fee in the form of a stock purchase warrant to Northwest. In addition, the Company agreed to fund certain costs related to the transition of Airlink operations in the Detroit and Milwaukee service areas. Such transition costs and fees are included as contract rights and are fully recoverable under the terms of the Airlink Agreement. Contract rights and related other assets totaled $5,769 and related accumulated amortization totaled $4,731 at March 31, 1996. Contract rights are amortized on a straight-line basis over five years to coincide with the minimum term of the Airlink Agreement.
REVENUE RECOGNITION
Passenger revenues are recorded as income when the respective services are rendered.
FREQUENT FLYER AWARDS
As a Northwest Airlink carrier, Mesaba participates in Northwest's frequent flyer program (WorldPerks), and passengers may use mileage accumulated in that program to obtain discounted or free trips that might include a flight segment on one of Mesaba's flights. However, under the Airlink Agreement, Northwest is responsible for the administration of WorldPerks, and Mesaba receives revenue from Northwest for WorldPerks travel awards redeemed on Mesaba flight segments.
INCOME TAXES
The Company accounts for income taxes in accordance with the liability method of accounting. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities . These differences will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
INCOME PER SHARE
Net income per share has been computed based upon the weighted average number of common and dilutive common equivalent shares outstanding during each year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates.
3. FLIGHT EQUIPMENT:
The Company's airline fleet consisted of the following aircraft held under operating leases as of March 31, 1996:
Number of Seating Aircraft Type of Aircraft Capacity ---------- ----------------------- -------------
25 de Havilland Dash 8 (Dash 8) 37 26 Fairchild Metro III (Metro III) 19
Under terms of the Airlink Agreement, the Company subleases its Dash 8 aircraft from Northwest under operating leases with original terms of up to five years. The Airlink Agreement allows the Company to return aircraft to Northwest upon the occurrence of certain events, including termination or breach of the Airlink Agreement. These leases require rental payments of approximately $863 per year for each aircraft.
Until January 1, 1996 the Airlink Agreement required Northwest to provide for all major maintenance and overhauls for Dash 8 aircraft. Pursuant to an amendment to the Airlink Agreement, along with revenue enhancements, the responsibility for certain Dash 8 maintenance costs up to a specified level were transferred to Mesaba effective January 1, 1996.
Aircraft maintenance and repairs on Metro III aircraft are charged to expense when incurred, except for the cost of major airframe and engine overhauls, for which the estimated cost is accrued and charged to maintenance expense based upon hours flown pursuant to the specific lease agreements, thus providing for the overhaul cost when it occurs.
The aircraft operating leases require future minimum rental payments as follows at March 31, 1996:
1997 $26,586 1998 13,998 1999 2,035 2000 396
Rent expense under aircraft operating leases totaled approximately $31,330 in 1996, $31,262 in 1995 and $32,914 in 1994 (including $21,564, $21,626 and $21,088 paid to Northwest in 1996, 1995 and 1994, respectively) and is included in flight operations in the accompanying consolidated statements of operations.
On March 7, 1996, the Company entered into an agreement with Saab Aircraft AB to acquire up to 72 Saab 340 aircraft (50 firm orders, 22 options). The thirty to thirty-four passenger Saab regional airliner will replace Mesaba's current fleet of 51 aircraft within the next three years.
4. REVOLVING CREDIT AGREEMENT: The Company has an unsecured credit agreement with a bank providing for borrowings of up to $5,000 and a letter-of-credit agreement of up to $200. No amounts were outstanding under the credit agreement during the three years ended March 31, 1996. Compensating balances in an amount equal to 5% of the available revolving line-of-credit facility are required to be maintained ($250 as of March 31, 1996). The
credit agreement requires the Company to maintain minimum levels of tangible net worth, net working capital and certain other financial ratios. The Company was in compliance with these requirements at March 31, 1996.
5. INCOME TAXES:
The provision for income taxes for the three years ended March 31 is comprised of the following elements:
1996 1995 1994 -------- -------- --------
Current: Federal $4,130 $2,131 $2,536 State 1,232 531 647 Deferred 293 (139) (187) -------- -------- --------
Total provision for income taxes $5,655 $2,523 $2,996 -------- -------- -------- -------- -------- -------- The actual income tax expense differs from the expected tax expense for 1996, 1995 and 1994 (computed by applying the U.S. federal corporate tax rate of 35 percent in 1996 and 1995 and 34 percent in 1994 to earnings before income taxes) as follows in thousands: 1996 1995 1994 -------- -------- --------
Computed tax expense at statutory rate 21,675 1,795 2,264 Increase (decrease) in income taxes resulting from: Tax free distribution of Subsidiary (17,256) -- -- State taxes, net of federal tax benefit 933 343 400 Non-deductible flight crew expenses 251 262 230 Other, net 52 123 102 ------- ------- ------- Total income tax expense 5,655 2,523 2,996 ------- ------- ------- ------- ------- -------
Deferred tax assets and liabilities are comprised of the following as of March 31:
1996 1995 ------- ------- Deferred tax assets: Maintenance $1,660 $1,240 Accrued vacation 594 483 Property taxes 236 181 Prepaid rent 166 176 Workers' compensation insurance 154 118 Other 26 186 ------- ------- Gross deferred tax assets 2,836 2,384 ------- ------- Deferred tax liabilities: Property and equipment 1,009 192 Preoperating costs 71 128 Integration funds 101 116 ------- ------- Gross deferred tax liabilities 1,181 436 ------- ------- Net deferred tax assets $1,655 $1,948 ------- ------- ------- -------
6. SHAREHOLDERS' EQUITY:
STOCK OPTION PLANS
The Company has stock option plans for key employees and directors which authorize the issuance of shares of common stock for such options. Under the plans, options are granted by the compensation committee of the board of directors and are exercisable for five years commencing one year after the date of grant. The purchase price of the stock is 110% of the fair market value of the stock at the date of grant for participants owning 10% or more of the outstanding common stock and 100% of the fair market value for all other participants. In connection with the spin-off outstanding options were repriced in relation to the fair market value of the Company, post-spin-off (see Note 8).
Stock option transactions for the three years ended March 31 were as follows:
Shares Price Per Share ------------ -----------------
Options outstanding, March 31, 1993 823,920 $1.75-$8.00 Granted 442,000 $8.75-$10.25 Exercised (178,200) $1.75-$6.75 Canceled (2,000) $6.75 ------------ Options outstanding, March 31, 1994 1,085,720 $2.13-$10.25 Granted 239,000 $6.76-$7.75 Exercised (157,900) $2.13-$6.75 Canceled (29,200) $9.50 ------------ Options outstanding, March 31, 1995 1,137,620 $2.13-$10.25 Granted 461,000 $4.38-$7.88 Exercised (567,320) $2.13-$9.50 Canceled (403,800) $6.75-$10.25 ------------ Options outstanding, March 31, 1996 627,500 $4.13-$7.88 ------------ ------------ Exercisable at March 31, 1996 170,500 ------------ ------------ Available for grant at March 31, 1996 521,500 ------------ ------------
STOCK PURCHASE PLAN
The Company has an employee stock purchase plan which allows all full-time personnel employed for more than six months the opportunity to purchase shares of stock in the Company at the market price through payroll deductions. All administrative costs of this plan are paid by the Company.
COMMON STOCK TRANSACTIONS
On October 19, 1993, the Company issued and sold 1,379,310 shares of its common stock to an investor in a private placement at the price of $7.25 per share. The proceeds of the sale totaled $10,000.
7. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
In addition to the aircraft described in Note 3, the Company leases land, office and hangar facilities and certain terminal facilities under capitalized and operating leases which provide for approximate future minimum rental payments as follows at March 31, 1996:
Capitalized Operating Leases Leases --------------- ------------ 1997 $ 783 $ 267 1998 783 250 1999 783 250 2000 783 250 2001 783 250 Thereafter 5,286 2,113 ------- -------- 9,201 $3,380 Less- Amount representing interest 3,148 -------- ------- -------- 6,053 Less- Current maturities 399 ------- Total long-term capital lease obligations $ 5,654 ------- -------
Rent expense under all facility operating leases totaled approximately $2,405 in 1996, $1,928 in 1995 and $1,875 in 1994.
BENEFIT PLAN
The Company maintains a 401(k) benefit plan for eligible employees whereby the Company will match 25% of employee contributions to the plan, up to 6% of each employee's compensation. The Company's contribution to the plan totaled $303 to the plan in 1996, $291 in 1995 and $235 in 1994.
LITIGATION
The Company is a party to ongoing legal and tax proceedings arising in the ordinary course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations, or its cash flows.
8. SPIN-OFF:
In June 1994, the Company acquired the common stock of Conquest Sun Airlines, Inc. (Conquest) for $2,500. The acquisition was recorded under the purchase method of accounting. Subsequent to the transaction the company's name was changed to Airtran Airways.
In March 1995, the Company and Northwest entered into an agreement to spin off Airtran Airways and Mesaba's fixed base operation (FBO) in Grand Rapids, Minnesota. Under the terms of the spin-off, the Company established a new subsidiary (Airways Corporation) and consolidated Airtran Airways and the FBO, in order to facilitate the distribution of Airways Corporation's common stock to the Company's shareholders. In addition, The Company made a $20,250 contribution in cash and certain assets to Airways prior to the spin-off date.
Also in connection with the spin-off, Northwest waived its right to receive a distribution of Airways Corporation common stock, in exchange for 2,052,275 shares of Mesaba Holdings, Inc. common stock. Northwest exercised its warrants to purchase 1,499,078 shares of the Company's common stock at their stated exercise price. Subsequent to these transactions, Northwest owned approximately 29.7% of the outstanding shares of the Company's common stock. In addition, Northwest assumed responsibility for setting Mesaba's flight schedules and aircraft routings. Northwest and Mesaba also entered into a good faith agreement to extend the Airlink Agreement for a minimum of ten years. Northwest agreed to make quarterly payments to Mesaba which, together with payments under the Airlink Agreement, guarantees that Mesaba's pretax income will be not less than $7.6 million for the last three quarters of fiscal 1996 and $10.0 million for fiscal 1997. Revenues do not include any payments made to Mesaba pursuant to the income guarantee as the Company's internally generated profits exceeded the guarantee amount.
Concurrent with the spin-off date, outstanding Company stock options were repriced (lowered by $2.00 per share) in relation to the fair market value of the Company post-spin-off of Airways. Unexercised options previously granted to certain directors and officers who became affiliated with Airways were canceled.
At a special meeting held on August 29, 1995, the Company's shareholders ratified the distribution of 100% of the outstanding common stock of its wholly owned subsidiary, Airways, to the Company's shareholders. The shareholders also approved a proposal to change the Company's name to Mesaba Holdings, Inc. from Airtran Corporation. Following the distribution of the Airways stock on September 7, 1995, the sole business of the Company has consisted of the regional airline operations of Mesaba.
The Company recorded a one-time gain of $49,303 in the second quarter as a result of the tax-free distribution of Airways to the Company's shareholders. The gain reflects the difference between the book value of the Airways stock distributed in the spin-off and the actual market value of such stock on September 8, 1995.
9. QUARTERLY FINANCIAL DATA (UNAUDITED):
10. NEW ACCOUNTING STANDARD
Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121 imposes criteria for evaluating the realizability of long-lived assets by requiring that such assets be probable of future recovery at each balance sheet date. The Company adopted SFAS 121 during fiscal 1996 and the effect of the adoption did not have a material effect on the Company's financial position or results of operations.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is incorporated herein by reference to the descriptions set forth under the caption "Election of Directors" in the Proxy Statement for the 1996 Annual Meeting of Shareholders (the "1996 Proxy Statement"). Information regarding executive officers of the Company is incorporated herein by reference to Item 1 of this Form 10-K under the caption "Executive Officers of the Company" on page 11.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by reference to the information set forth under the caption "Compensation of Executive Officers" in the 1996 Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 1996 Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with the Company is incorporated herein by reference to the information set forth under the caption "Certain Transactions" in the 1996 Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED WITH THIS REPORT.
(1) Financial Statements of Mesaba Holdings, Inc.
Page of this form 10-K ----
Report of Independent Public Accountants 22 Consolidated balance sheets as of March 31, 1996 and 1995 23 Consolidated statements of operations for the years ended March 31, 1996, 1995 and 1994 24 Consolidated statements of shareholders' equity for the years ended March 31, 1996, 1995 and 1994 25 Consolidated statements of cash flows for the years ended March 31, 1995, 1995 and 1994 26 Notes to consolidated financial statements 27
(2) Not applicable
(3) Exhibits
3A. Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarter ended September 31, 1995.
3B. Bylaws. Incorporated by reference to Exhibit 3.2 to the Form S-4.
4A. Specimen certificate for shares of the Common Stock of the Company. Incorporated by reference to Exhibit 4A to the Company's Form 10-K for the year ended March 31, 1989.
9A. Shareholder's Agreement regarding election of representative of Northwest Aircraft Inc. to Board of Directors. Incorporated by reference to Exhibit 9A to Mesaba's Registration Statement on Form S-1, Registration No. 33-820.
10A. FAA Air Carrier Operating Certificate. Incorporated by reference to Exhibit 10A to the Company's Form 10-K for the year ended March 31, 1989.
10B. 1986 Stock Option Plan (as Amended). Incorporated by reference to Exhibit 10D to the Company's Form 10-K for the year ended March 31, 1990.
10C. 1991 Director Stock Option Plan. Incorporated by reference to Exhibit 10(i) to the Company's Registration Statement on Form S-8, Registration No. 33-62386.
10D. CAB Part 298 Registration. Incorporated by reference to Exhibit 10G to Mesaba's Form 10-K for the year ended March 31, 1987.
10E. Revolving Credit and Term Loan Agreement Dated as of November 7, 1988 between Norwest Bank Minnesota, N.A. and Mesaba Incorporated by reference to Exhibit 10F to the Company's Form 10-K for the year ended March 31, 1989.
10F. Airline Services Agreement between Northwest Airlines, Inc. and Mesaba (certain portions of this agreement are subject to an order granting confidential treatment pursuant to Rule 24b-2). Incorporated by reference to Exhibit 10V to the Company's Form 10-Q for the quarter ended September 30, 1988.
10G. Amendment No. 3 to Airline Services Agreement between Northwest Airlines, Inc. and Mesaba dated as of April 1, 1992 (certain portions of this amendment are subject to an order granting confidential treatment under Rule 24b-2). Incorporated by reference to Exhibit 10H to the Company's Form 10-K for the year ended March 31, 1992.
10H. Foreign Air Carrier Operating Certificates issued May 6, 1991 by the Canadian Department of Transport. Incorporated by reference to Exhibit 10H to the Company's Form 10-K for the year ended March 31, 1991.
10I. Facility Lease and Operating Agreement dated April 18, 1988, between the Metropolitan Airport Commission and Mesaba Incorporated by reference to Exhibit 10K to the Company's Form 10-K for the year ended March 31, 1989.
10J. Ninth Amendment to Revolving Credit and Term Loan Agreement and Fifth Amendment to Revolving Note between Mesaba and Norwest Bank Minnesota, National Association.
10K. Letter of Credit and Reimbursement Agreement dated as of August 1, 1990 between Mesaba and Norwest Bank Minnesota, National Association. Incorporated by reference to Exhibit 10A to the Company's Form 10-Q for the quarter ended September 30, 1990.
10L. Special Facilities Lease dated as of August 1, 1990 between Charter County of Wayne, State of Michigan and Mesaba, Inc. Incorporated by reference to Exhibit 10B to the Company's Form 10-Q for the quarter ended September 30, 1990.
10M. Ground Lease dated August 1, 1990 between Charter County of Wayne, State of Michigan and Mesaba Incorporated by reference to Exhibit 10C to the Company's Form 10-Q for the quarter ended September 30, 1990.
10N. Combination Leasehold Mortgage, Assignment of Rents, Security Agreement and Fixture Financing Statement dated as of August 1, 1990 between Mesaba and Norwest Bank Minnesota, National Association. Incorporated by reference to Exhibit 10D to the Company's Form 10-Q for the quarter ended September 30, 1990.
10O. Letter Agreement dated December 24, 1992 relating to the repurchase of shares of Common Stock from Northwest Aircraft, Inc. Incorporated by reference to Exhibit 10EE to the Company's Form 10-K for the year ended March 31, 1993.
10P. DOT Certificate of Public Convenience and Necessity dated October 26, 1992. Incorporated by reference to Exhibit 10FF of the Company's Form 10-K for the year ended March 31, 1993.
10Q. Stock Purchase Agreement between AirTran Corporation and Carl R. Pohlad dated as of October 18, 1993. Incorporated by reference to Exhibit 10 of the Company's Form 8-K dated October 19, 1993.
10R. AirTran Corporation 1994 Stock Option Plan. Incorporated by reference to Exhibit 10 of the Company's Form S-8 Registration Statement as filed March 2, 1995 (Registration No. 33-89930).
10S. Agreement between AirTran Corporation, Mesaba, Northwest Aircraft, Inc., and Northwest Airlines, Inc. dated May 18, 1995. Incorporated by reference to Exhibit 10A of the Company's Form 8-K as filed May 18, 1995.
10T. Preliminary Agreement between AirTran Corporation, Mesaba and Northwest Airlines, Inc. dated March 8, 1995. Incorporated by reference to Exhibit 10 of the Company's Form 8-K as filed March 8, 1995.
10U. Term Sheet Proposal for the Acquisition of Saab 340 Aircraft by Mesaba Aviation, Inc. dated March 7, 1996 (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2).
10V. Letter Agreement regarding Saab 340BPlus Acquisition Financing dated March 7, 1996 (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2).
10W. Letter Agreement of April 26, 1996 relating to Airline Services Agreement between Mesaba Aviation, Inc. and Northwest Airlines, Inc. (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2).
10X. Letter Agreement of April 28, 1996 relating to Airline Services Agreement between Mesaba Aviation, Inc. and Northwest Airlines, Inc.
11. Statement regarding computation of per share earnings.
21. Subsidiaries.
23. Consent of independent public accountants.
24. Powers of Attorney.
27. Financial Data Schedules.
(b) REPORTS ON FORM 8-K. During the Company's fourth quarter of 1996, the Company did not file any reports on Form 8-K.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 28, 1996 MESABA HOLDINGS, INC.
By /s/ Bryan K. Bedford --------------------- Bryan K. Bedford President and Chief Executive Officer
- -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Bryan K. Bedford President and Chief Executive Officer June 28, 1996 - ------------------------ (Principal Executive Officer) and Bryan K. Bedford Director
/s/ Robert H. Cooper Director of Finance (Principal June 28, 1996 - ------------------------ Financial Officer) Robert H. Cooper
/s/ Jon R. Meyer - ------------------------ Controller (Principal Accounting June 28, 1996 Jon R. Meyer Officer)
* Director June 28, 1996 - ------------------------ Donald E. Benson
* Director June 28, 1996 - ------------------------ Christopher E. Clouser
* Director June 28, 1996 - ------------------------ Richard B. Hirst
* Director June 28, 1996 - ------------------------ Carl R. Pohlad
* Director June 28, 1996 - ------------------------ Robert C. Pohlad
* Director June 28, 1996 - ------------------------ Donald A. Washburn
* Director June 28, 1996 - ------------------------ Raymond W. Zehr, Jr.
*By /s/ Bryan K. Bedford Attorney-in-fact June 28, 1996 --------------------- Bryan K. Bedford
EXHIBIT INDEX
MANUALLY NUMBERED PAGE EXHIBIT NO. EXHIBIT REFERENCES - ----------- ------- ------------
3A. Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarter ended September 31, 1995.
3B. Bylaws. Incorporated by reference to Exhibit 3.2 to the Form S-4.
4A. Specimen certificate for shares of the Common Stock of the Company. Incorporated by reference to Exhibit 4A to the Company's Form 10-K for the year ended March 31, 1989.
9A. Shareholder's Agreement regarding election of representative of Northwest Aircraft Inc. to Board of Directors. Incorporated by reference to Exhibit 9A to Mesaba's Registration Statement on Form S-1, Registration No. 33-820.
10A. FAA Air Carrier Operating Certificate. Incorporated by reference to Exhibit 10A to the Company's Form 10-K for the year ended March 31, 1989.
10B. 1986 Stock Option Plan (as Amended). Incorporated by reference to Exhibit 10D to the Company's Form 10-K for the year ended March 31, 1990.
10C. 1991 Director Stock Option Plan. Incorporated by reference to Exhibit 10(i) to the Company's Registration Statement on Form S-8, Registration No. 33-62386.
10D. CAB Part 298 Registration. Incorporated by reference to Exhibit 10G to Mesaba's Form 10-K for the year ended March 31, 1987.
10E. Revolving Credit and Term Loan Agreement Dated as of November 7, 1988 between Norwest Bank Minnesota, N.A. and Mesaba, Inc. Incorporated by reference to Exhibit 10F to the Company's Form 10-K for the year ended March 31, 1989.
10F. Airline Services Agreement between Northwest Airlines, Inc. and Mesaba, Inc. (certain portions of this agreement are subject to an order granting confidential treatment pursuant to Rule 24b-2). Incorporated by reference to Exhibit 10V to the Company's Form 10-Q for the quarter ended September 30, 1988.
10G. Amendment No. 3 to Airline Services Agreement between Northwest Airlines, Inc. and Mesaba dated as of April 1, 1992 (certain portions of this amendment are subject to an order granting confidential treatment under Rule 24b-2). Incorporated by reference to Exhibit 10H to the Company's Form 10-K for the year ended March 31, 1992.
10H. Foreign Air Carrier Operating Certificates issued May 6, 1991 by the Canadian Department of Transport. Incorporated by reference to Exhibit 10H to the Company's Form 10-K for the year ended March 31, 1991.
10I. Facility Lease and Operating Agreement dated April 18, 1988, between the Metropolitan Airport Commission and Mesaba Incorporated by reference to Exhibit 10K to the Company's Form 10-K for the year ended March 31, 1989.
10J. Ninth Amendment to Revolving Credit and Term Loan Agreement and Fifth Amendment to Revolving Note between Mesaba and Norwest Bank Minnesota, National Association.
10K. Letter of Credit and Reimbursement Agreement dated as of August 1, 1990 between Mesaba and Norwest Bank Minnesota, National Association. Incorporated by reference to Exhibit 10A to the Company's Form 10-Q for the quarter ended September 30, 1990.
10L. Special Facilities Lease dated as of August 1, 1990 between Charter County of Wayne, State of Michigan and Mesaba Incorporated by reference to Exhibit 10B to the Company's Form 10-Q for the quarter ended September 30, 1990.
10M. Ground Lease dated August 1, 1990 between Charter County of Wayne, State of Michigan and Mesaba Incorporated by reference to Exhibit 10C to the Company's Form 10-Q for the quarter ended September 30, 1990.
10N. Combination Leasehold Mortgage, Assignment of Rents, Security Agreement and Fixture Financing Statement dated as of August 1, 1990 between Mesaba and Norwest Bank Minnesota, National Association. Incorporated by reference to Exhibit 10D to the Company's Form 10-Q for the quarter ended September 30, 1990.
10O. Letter Agreement dated December 24, 1992 relating to the repurchase of shares of Common Stock from Northwest Aircraft, Inc. Incorporated by reference to Exhibit 10EE to the Company's Form 10-K for the year ended March 31, 1993.
10P. DOT Certificate of Public Convenience and Necessity dated October 26, 1992. Incorporated by reference to Exhibit 10FF of the Company's Form 10-K for the year ended March 31, 1993.
10Q. Stock Purchase Agreement between AirTran Corporation and Carl R. Pohlad dated as of October 18, 1993. Incorporated by reference to Exhibit 10 of the Company's Form 8-K dated October 19, 1993.
10R. AirTran Corporation 1994 Stock Option Plan. Incorporated by reference to Exhibit 10 of the Company's Form S-8 Registration Statement as filed March 2, 1995 (Registration No. 33-89930).
10S. Agreement between AirTran Corporation, Mesaba, Northwest Aircraft, Inc., and Northwest Airlines, Inc. dated May 18, 1995. Incorporated by reference to Exhibit 10A of the Company's Form 8-K as filed May 18, 1995.
10T. Preliminary Agreement between AirTran Corporation, Mesaba and Northwest Airlines, Inc. dated March 8, 1995. Incorporated by reference to Exhibit 10 of the Company's Form 8-K as filed March 8, 1995.
10U. Term Sheet Proposal for the Acquisition of Saab 340 Aircraft by Mesaba Aviation, Inc. dated March 7, 1996 (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2).
10V. Letter Agreement regarding Saab 340BPlus Acquisition Financing dated March 7, 1996 (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2).
10W. Letter Agreement of April 26, 1996 relating to Airline Services Agreement between Mesaba Aviation, Inc. and Northwest Airlines, Inc. (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2).
10X. Letter Agreement of April 28, 1996 relating to Airline Services Agreement between Mesaba Aviation, Inc. and Northwest Airlines, Inc.
11. Statement regarding computation of per share earnings.
21. Subsidiaries.
23. Consent of independent public accountants.
24. Powers of Attorney.
27. Financial Data Schedules.