**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

| **ý****QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934.**                                                         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                             |
| **For the quarterly period ended September 30, 2003**                                                                                                            |
|                                                                                                                                                             |
| **OR**                                                                                                                                                           |
|                                                                                                                                                             |
| **o****TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                              |
|                                                                                                                                                             |
| **For the transition period from              to          ** |
|                                                                                                                                                             |
| **Commission File No:  0-17895**                                                                                                                            |
|                                                                                                                                                             |
| **MAIR  HOLDINGS, INC.**                                                                                                                                         |
| Incorporated under the laws of Minnesota                                                                                                                         |
|                                                                                                                                                             |
| **41-1616499**                                                                                                                                                   |
| (I.R.S. Employer ID No.)                                                                                                                                         |
|                                                                                                                                                             |
| **Fifth Street Towers, Suite 1720  150 South Fifth Street  Minneapolis, MN  55402  (612) 333-0021**                                                         |

** **

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes ý   No o

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act).

 

Yes o   No ý

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

| **Class**                             |   | **Outstanding  as of November 3, 2003** |
|---------------------------------------|--------|-----------------------------------------|
| Common Stock Par value $.01 per share |   | 20,323,141                              |

 

 

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CAUTIONARY STATEMENT UNDER THEPRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

 

Statements in this Quarterly Report on Form 10-Q under the caption“Business” and “Management’s Discussion and Analysis of  Financial Condition and Results ofOperations” as well as oral statements that may be made by the Company or itssubsidiaries or by officers, directors or employees of the Company or itssubsidiaries acting on the Company’s behalf, that are not historical fact mayconstitute “forward looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Such forward-looking statementsinvolve factors that could cause the actual results of the Company to differmaterially from historical results or from any results expressed or implied bysuch forward-looking statements.  TheCompany cautions the public not to place undue reliance on forward-lookingstatements, which may be based on assumptions and anticipated events that donot materialize.  Factors which couldcause the Company’s actual results to differ from forward-looking statementsinclude material changes in the relationship between the Company, itssubsidiaries and Northwest Airlines (“Northwest”); the outcome of the potentialtermination of Mesaba Aviation, Inc’s. Regional Jet Services Agreement by Northwest; changes in Northwest’s airservice; reduced passenger and flight activity as a result of severe acuterespiratory syndrome and terrorist events; expenses associated withrestructuring operations; a slow-down in the overall United States economy;increased operating costs due to heightened security measures; the impact ofUnited States government programs on operations; changes in regulationsaffecting the airline industry, including those issued by the Department ofTransportation (“DOT”), Transportation Security Administration (“TSA”) andFederal Aviation Administration (“FAA”); seasonal factors; labor relations,including labor shortages, slow downs and/or work stoppages; and ongoing legalproceedings.

 

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**PartI.  FINANCIAL INFORMATION**

 

**Item 1. CONSOLIDATEDFINANCIAL STATEMENTS**

 

**MAIRHOLDINGS, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(Inthousands)**

**(Unaudited)**

 
|                                                   |   | **September  30  2003** |    | **March 31  2003** |   |
|--------------------------------------------------------|--------|-------------------------|---------|--------------------|--------|
|                                                   |   |                    |    |               |   |
| ASSETS                                                 |   |                    |    |               |   |
|                                                   |   |                    |    |               |   |
| CURRENT ASSETS:                                        |   |                    |    |               |   |
| Cash and cash equivalents                              |   | $                       | 69,987  |               | $      | 60,908 |   |
| Short term investments                                 |   | 56,839                  |    | 40,464             |   |
| Accounts receivable, net of reserves of $395 and  $389 |   | 30,348                  |    | 40,682             |   |
| Inventories, net                                       |   | 8,181                   |    | 8,459              |   |
| Prepaid expenses and deposits                          |   | 5,880                   |    | 4,925              |   |
| Deferred income taxes and other                        |   | 10,767                  |    | 10,706             |   |
| Total current assets                                   |   | 182,002                 |    | 166,144            |   |
|                                                   |   |                    |    |               |   |
| PROPERTY AND EQUIPMENT:                                |   |                    |    |               |   |
| Flight equipment                                       |   | 80,442                  |    | 78,549             |   |
| Other property and equipment                           |   | 40,817                  |    | 37,916             |   |
| Less: Accumulated depreciation and amortization        |   | (80,240                 | )       | (72,667            | )      |
| Net property and equipment                             |   | 41,019                  |    | 43,798             |   |
|                                                   |   |                    |    |               |   |
| LONG TERM INVESTMENTS                                  |   | 24,090                  |    | 21,762             |   |
| OTHER ASSETS, net                                      |   | 14,532                  |    | 15,706             |   |
|                                                   |   | $                       | 261,643 |               | $      | 247,410 |   |

 

The accompanying notes are an integral partof these unaudited consolidated financial statements.

 

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**MAIRHOLDINGS, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(Inthousands, except share information)**

**(Unaudited)**

 
|                                                                                                                  |   | **September 30  2003** |    | **March 31  2003** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|--------------------|--------|
|                                                                                                                  |   |                   |    |               |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                            |   |                   |    |               |   |
|                                                                                                                  |   |                   |    |               |   |
| CURRENT  LIABILITIES:                                                                                                 |   |                   |    |               |   |
| Accounts  payable                                                                                                     |   | $                      | 14,227  |               | $      | 15,285 |   |
| Accrued  liabilities:                                                                                                 |   |                   |    |               |   |
| Payroll                                                                                                               |   | 15,224                 |    | 14,295             |   |
| Maintenance                                                                                                           |   | 16,413                 |    | 16,031             |   |
| Deferred  income                                                                                                      |   | 2,602                  |    | 2,619              |   |
| Other,  primarily property and income taxes                                                                           |   | 21,770                 |    | 14,445             |   |
| Total  current liabilities                                                                                            |   | 70,236                 |    | 62,675             |   |
|                                                                                                                  |   |                   |    |               |   |
| OTHER  NONCURRENT LIABILITIES                                                                                         |   | 5,515                  |    | 6,790              |   |
|                                                                                                                  |   |                   |    |               |   |
| COMMITMENTS  AND CONTINGENCIES (Notes 2 and 12)                                                                       |   |                   |    |               |   |
|                                                                                                                  |   |                   |    |               |   |
| SHAREHOLDERS’  EQUITY:                                                                                           |   |                   |    |               |   |
| Common  stock, $.01 par value; 60,000,000 shares authorized, 20,323,141 and  20,320,641 shares issued and outstanding |   | 203                    |    | 203                |   |
| Paid-in  capital                                                                                                      |   | 51,145                 |    | 50,615             |   |
| Warrants                                                                                                              |   | 16,500                 |    | 16,500             |   |
| Accumulated  other comprehensive income                                                                               |   | 93                     |    | 116                |   |
| Retained  earnings                                                                                                    |   | 117,951                |    | 110,511            |   |
| Total  shareholders’ equity                                                                                      |   | 185,892                |    | 177,945            |   |
|                                                                                                                  |   | $                      | 261,643 |               | $      | 247,410 |   |

 

The accompanying notes are an integral partof these unaudited consolidated financial statements.

 

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**MAIRHOLDINGS, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Inthousands, except per share information)**

**(Unaudited)**

 
|                                      |   | **Three Months Ended  September 30** |    | **Six Months Ended  September 30** |   |
|-------------------------------------------|--------|--------------------------------------|---------|------------------------------------|--------|
|                                      |   | **2003**                             |    | **2002**                           |   | **2003** |   | **2002** |   |
| OPERATING  REVENUES:                      |   |                                 |    |                               |   |   |   |   |   |
| Passenger                                 |   | $                                    | 109,683 |                               | $      | 113,042 |   | $ | 216,445 |   | $ | 222,072 |   |
| Freight  and other                        |   | 7,779                                |    | 5,593                              |   | 15,050 |   | 9,917 |   |
| Total  operating revenues                 |   | 117,462                              |    | 118,635                            |   | 231,495 |   | 231,989 |   |
|                                      |   |                                 |    |                               |   |   |   |   |   |
| OPERATING  EXPENSES:                      |   |                                 |    |                               |   |   |   |   |   |
| Wages  and benefits                       |   | 36,555                               |    | 33,967                             |   | 71,783 |   | 65,756 |   |
| Aircraft  fuel                            |   | 5,759                                |    | 6,399                              |   | 11,476 |   | 12,106 |   |
| Aircraft  maintenance                     |   | 20,575                               |    | 19,953                             |   | 38,955 |   | 39,465 |   |
| Aircraft  rents                           |   | 26,764                               |    | 27,022                             |   | 53,542 |   | 53,524 |   |
| Landing  fees                             |   | 1,805                                |    | 2,127                              |   | 3,570 |   | 3,789 |   |
| Insurance  and taxes                      |   | 2,671                                |    | 4,303                              |   | 5,498 |   | 8,628 |   |
| Depreciation  and amortization            |   | 4,334                                |    | 4,708                              |   | 8,833 |   | 9,571 |   |
| Administrative  and other                 |   | 12,723                               |    | 15,209                             |   | 26,819 |   | 27,976 |   |
| Total  operating expenses                 |   | 111,186                              |    | 113,688                            |   | 220,476 |   | 220,815 |   |
| Operating  income                         |   | 6,276                                |    | 4,947                              |   | 11,019 |   | 11,174 |   |
|                                      |   |                                 |    |                               |   |   |   |   |   |
| NONOPERATING  INCOME (EXPENSE):           |   |                                 |    |                               |   |   |   |   |   |
| Interest  income                          |   | 449                                  |    | 664                                |   | 818 |   | 1,452 |   |
| Other,  net                               |   | (89                                  | )       | (46                                | )      | 2,521 |   | (2,752 | ) |
| Other  nonoperating income (expense), net |   | 360                                  |    | 618                                |   | 3,339 |   | (1,300 | ) |
| Income  before provision for income taxes |   | 6,636                                |    | 5,565                              |   | 14,358 |   | 9,874 |   |
|                                      |   |                                 |    |                               |   |   |   |   |   |
| PROVISION  FOR INCOME TAXES               |   | 2,702                                |    | 3,194                              |   | 6,918 |   | 5,927 |   |
| NET  INCOME                               |   | $                                    | 3,934   |                               | $      | 2,371 |   | $ | 7,440 |   | $ | 3,947 |   |
|                                      |   |                                 |    |                               |   |   |   |   |   |
| NET  INCOME PER SHARE:                    |   |                                 |    |                               |   |   |   |   |   |
| Earnings  per common share - basic        |   | $                                    | 0.19    |                               | $      | 0.12 |   | $ | 0.37 |   | $ | 0.19 |   |
| Earnings  per common share - diluted      |   | $                                    | 0.19    |                               | $      | 0.12 |   | $ | 0.36 |   | $ | 0.19 |   |
|                                      |   |                                 |    |                               |   |   |   |   |   |
| WEIGHTED  AVERAGE SHARES OUTSTANDING:     |   |                                 |    |                               |   |   |   |   |   |
| Basic                                     |   | 20,323                               |    | 20,298                             |   | 20,322 |   | 20,298 |   |
| Diluted                                   |   | 20,540                               |    | 20,302                             |   | 20,414 |   | 20,318 |   |

 

The accompanying notes are an integral partof these unaudited consolidated financial statements.

 

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**MAIRHOLDINGS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Inthousands)**

**(Unaudited)**

 
|                                                                               |   | **Six Months Ended  September 30** |   |
|------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                               |   | **2003**                           |   | **2002** |   |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                             |   |                               |   |   |   |
| Net  income                                                                        |   | $                                  | 7,440  |   | $ | 3,947 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |   |                               |   |   |   |
| Depreciation  and amortization                                                     |   | 8,833                              |   | 9,571 |   |
| Writedown  of investment                                                           |   | —                             |   | 2,994 |   |
| Amortization  of deferred credits                                                  |   | (1,175                             | )      | (1,398 | ) |
| Stock-based  compensation                                                          |   | 515                                |   | — |   |
| Changes  in current operating items:                                               |   |                               |   |   |   |
| Accounts  receivable                                                               |   | 10,334                             |   | 6,569 |   |
| Inventories                                                                        |   | 278                                |   | 437 |   |
| Prepaid  expenses and deposits                                                     |   | (955                               | )      | (1,259 | ) |
| Accounts  payable and other                                                        |   | 7,413                              |   | 4,966 |   |
| Net  cash provided by operating activities                                         |   | 32,683                             |   | 25,827 |   |
|                                                                               |   |                               |   |   |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                             |   |                               |   |   |   |
| Purchases  of investments                                                          |   | (37,381                            | )      | (61,594 | ) |
| Sales  of investments                                                              |   | 18,655                             |   | 83,660 |   |
| Purchases  of property and equipment                                               |   | (4,793                             | )      | (4,852 | ) |
| Net  cash provided by (used in) investing activities                               |   | (23,519                            | )      | 17,214 |   |
|                                                                               |   |                               |   |   |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES                                              |   |                               |   |   |   |
| Repayment  of other noncurrent liabilities                                         |   | (100                               | )      | — |   |
| Proceeds  from issuance of common stock                                            |   | 15                                 |   | — |   |
| Net  cash used in financing activities                                             |   | (85                                | )      | — |   |
|                                                                               |   |                               |   |   |   |
| NET  INCREASE IN CASH AND CASH EQUIVALENTS                                         |   | 9,079                              |   | 43,041 |   |
|                                                                               |   |                               |   |   |   |
| CASH  AND CASH EQUIVALENTS:                                                        |   |                               |   |   |   |
| Beginning  of period                                                               |   | 60,908                             |   | 31,250 |   |
| End  of period                                                                     |   | $                                  | 69,987 |   | $ | 74,291 |   |
|                                                                               |   |                               |   |   |   |
| SUPPLEMENTARY  CASH FLOW INFORMATION:                                              |   |                               |   |   |   |
| Cash  paid during period for:                                                      |   |                               |   |   |   |
| Interest                                                                           |   | $                                  | 47     |   | $ | — |   |
| Income  taxes                                                                      |   | $                                  | 347    |   | $ | 1,127 |   |

 

The accompanying notes are an integral partof these unaudited consolidated financial statements.

 

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**MAIRHOLDINGS, INC.**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

The consolidated financial statements included herein have beenprepared by MAIR Holdings, Inc. (the “Company” or “Holdings”), formerly knownas Mesaba Holdings, Inc., without audit, pursuant to the rules and regulationsof the Securities and Exchange Commission (“SEC”).  The information furnished in the consolidated financialstatements includes normal recurring adjustments and reflects all adjustments,which are, in the opinion of management, necessary for a fair presentation ofsuch consolidated financial statements. The Company’s business is seasonal and, accordingly, interim results arenot indicative of results for a full year. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principles generallyaccepted in the United States of America (“GAAP”) have been condensed oromitted pursuant to such rules and regulations, although the Company believesthat the disclosures are adequate to make the information presented notmisleading.  It is suggested that theseconsolidated financial statements be read in conjunction with the consolidatedfinancial statements for the year ended March 31, 2003, and the notes thereto,included in the Company’s Annual Report on Form 10-K as filed with the SEC.

 

1. Basis of Presentation

 

The consolidated financial statements include the accounts of theCompany and its wholly owned subsidiaries, Mesaba Aviation, Inc. (“Mesaba”) andBig Sky Transportation Co. (“Big Sky”). All significant intercompany transactions and balances have beeneliminated in consolidation.

 

The preparation of the consolidated financial statements in conformitywith GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingentliabilities, as well as the reported amounts of revenues and expenses.  The most significant use of estimatesrelates to accrued maintenance expenses, aircraft property and equipment lives,and inventory obsolescence reserves. Ultimate results could differ from those estimates.

 

Certain balances in the fiscal 2003 consolidated financial statementshave been reclassified to conform with the fiscal 2004 presentation.  These reclassifications had no impact on netincome or shareholders’ equity as previously reported.

 

2. Operations

 

*Mesaba*

Mesaba operates as a regional air carrier providing scheduled passengerservice as Mesaba Airlines/Northwest Airlink and Mesaba Airlines/NorthwestJet Airlink under two separate agreements with Northwest Airlines, Inc.(“Northwest”).  As of October 31, 2003,Mesaba served 114 cities in the United States and Canada from Northwest’s hubairports, Minneapolis/St. Paul, Detroit and Memphis.

 

Under the Airline Services Agreement (the “Airlink Agreement”), Mesabaoperates Saab 340 jet-prop aircraft (“Saab”) for Northwest.  The Airlink agreement provides for exclusiverights to designated service areas and extends through June 30, 2007.  Under the Airlink Agreement, Mesabarecognizes revenue for each completed available seat mile.  Additionally, under the Airlink Agreement,Mesaba purchases fuel, ground handling and other services from Northwest.  For these services, Mesaba paid to Northwest$7.6 million and $5.5 million for the three months ended September 30, 2003 and2002.  For these services, Mesaba paidto Northwest $14.5 million and $10.4 million for the six months ended September30, 2003 and 2002.  Either Northwest orMesaba may terminate the Airlink Agreement on 365 days notice or may beterminated immediately by either party for certain provisions provided for inthe Airlink Agreement.

 

Under the Regional Jet Services Agreement (the “Jet Agreement”), Mesabaoperates Avro RJ85 regional jets (“RJ85”) for Northwest.  The Jet Agreement extends through October25, 2006, unless terminated earlier in accordance with its provisions.  Under the Jet Agreement, Mesaba recognizesrevenue for each block hour flown. Northwest provides fuel and airport and passenger related services atNorthwest’s expense.  The Jet Agreementmay be terminated immediately by Mesaba or Northwest in accordance with certainprovisions provided in the Jet Agreement. Northwest can also cause the Jet Agreement to terminate on April 25,2004, by giving notice not later than December 15, 2003.  Also, see the subsequent event discussed atNote 12.

 

Under the agreements, all Mesaba flights appear in Northwest’stimetables and Mesaba receives ticketing and certain check-in, baggage andfreight-handling services from Northwest at certain airports.  Mesaba also benefits from its relationshipwith

 

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Northwest through advertising and marketing programs.  The Airlink and Jet Agreements provide forcertain incentive payments from Northwest to Mesaba based on achievement ofcertain operational or financial goals. Such incentives totaled $0.7 million and $0.9 million for the threemonths ended September 30, 2003 and 2002 and $2.5 million and $2.9 million forthe six months ended September 30, 2003 and 2002, and are included in passengerrevenues in the accompanying consolidated statements of operations.  Approximately 78% and 73% of the September30, 2003 and March 31, 2003 accounts receivable balances in the accompanyingconsolidated balance sheets are due from Northwest.

 

Cancellation of the Airlink or Jet Agreements or Northwest’s failure tomake timely payment of amounts owed to Mesaba or to otherwise materiallyperform under the Airlink or Jet Agreements would have a material adverseeffect on Mesaba’s and the Company’s operations, financial position and cashflows.  Northwest and Mesaba reviewcontract compliance on a periodic basis.

 

*Big Sky*

Big Sky operates as a regional carrier based in Billings, Montana,primarily providing scheduled passenger, airfreight, express package andcharter services.  Big Sky operatesdaily scheduled flights providing interline and online connecting services andlocal market services.

 

Big Sky provides scheduled air service to 19 communities in Montana,North Dakota, Washington and Idaho via its Billings, Montana hub.  Big Sky has code-sharing agreements withAlaska Airlines/Horizon Airlines, America West Airlines and Northwest Airlines,where its services are marketed jointly with those air carriers for connectingflights.  Big Sky participates in theEssential Air Service (“EAS”) program with the DOT.  The EAS program subsidizes air carriers to provide air service todesignated rural communities throughout the country that could not otherwiseeconomically justify that service on the basis of its passenger traffic.  The DOT pays EAS subsidies for eachdeparture in a covered market.

 

3. Acquisition

 

On September 26, 2002, the Company executed a definitive mergeragreement providing for the acquisition of Big Sky for $3.2 million, net ofcash acquired of $0.3 million.  Thetransaction closed on December 1, 2002.

 

TheCompany funded the acquisition with cash from operations and accounted for theacquisition using the purchase method of accounting.  Accordingly, the purchase price was allocated to the assetsacquired and liabilities assumed based on their estimated fair market values atthe date of acquisition.  Certain of theassets and liabilities have been recorded based upon preliminary estimates asof the date of the acquisition and are subject to future adjustments.  The excess of the purchase price over thefair market value of the net assets acquired was allocated to certainintangible assets and goodwill.  Resultsof Big Sky’s operations have been included in the accompanying consolidatedfinancial statements since the date of acquisition.  Due to the lack of materiality of Big Sky’s operations, pro formafinancial results are not presented.

 

4. Goodwill and Other Intangibles

 

Theexcess of the purchase price over the fair market value of the net assetsacquired was allocated to certain identifiable intangible assets, including BigSky’s pilot labor contract and an air carrier certificate, and togoodwill.  These intangible assets wererecorded based upon preliminary estimates and are subject to futureadjustments.  Goodwill and otherintangible assets and related accumulated amortization were as follows, inthousands:

 
|                          |   | **September 30, 2003** |   | **March 31, 2003**            |   |
|-------------------------------|--------|------------------------|--------|-------------------------------|--------|
|                          |   | **Gross**              |   | **Accumulated  Amortization** |   | **Net** |   | **Gross** |   | **Accumulated  Amortization** |   | **Net** |   |
| Air  carrier certificate      |   | $                      | 925    |                          |   |   | $ | 925 |   | $ | 925 |   |   |   | $ | 925 |   |
| Goodwill  and other           |   | 3,222                  |   |                          |   | 3,222 |   | 3,222 |   |   |   | 3,222 |   |
| Amortized  intangible assets: |   |                   |   |                          |   |   |   |   |   |   |   |   |   |
| Employee  contracts           |   | 2,840                  |   | (338                          | )      | 2,502 |   | 2,840 |   | (135 | ) | 2,705 |   |
|                          |   | $                      | 6,987  |                          | $      | (338 | ) | $ | 6,649 |   | $ | 6,987 |   | $ | (135 | ) | $ | 6,852 |   |
|                               |        |                        |        |                               |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The amortizable intangible is amortized over its estimated period ofbenefit.  Intangible asset amortizationexpense for the quarter and year to date ended September 30, 2003 was $0.1million and $0.2 million.  Based on thecurrent amount of intangible assets subject to amortization, estimatedamortization expense for each of the succeeding five fiscal years is $0.4million per year.  The recoverability ofgoodwill and the intangible assets are evaluated annually, at a minimum, or onan interim basis if events or circumstances indicate a possible inability torealize the carrying amounts.

 

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5. Investments

 

Investments consist principally of municipal securities and corporatebonds and are classified as available-for-sale as of September 30, 2003 andMarch 31, 2003.  Available-for-saleinvestments are reported at fair value with unrealized gains and lossesexcluded from operations and reported as a separate component of shareholders’equity, except for other-than-temporary impairments, which are reported as acharge to current operations and result in a new cost basis for theinvestment.  The Company recorded another-than-temporary impairment loss of $3.0 million on its investment in aWorldCom bond during the six months ended September 30, 2002 in the unauditedconsolidated statements of operations. In March 2003, the Company sold its investment in WorldCom for $0.8million, which resulted in a gain of approximately $0.4 million.  The Company classifies investments thatmature within one year as short term. Investments with maturity dates greater than one year are classified aslong term.

 

As of September 30, 2003, the amortized cost, gross unrealized gainsand losses, and fair value of investments were as follows, in thousands:

 
|                                      |   | **Amortized  Cost** |   | **Gross  Unrealized  Gain** |   | **Gross  Unrealized  Losses** |   | **Fair  Value** |   |
|-------------------------------------------|--------|---------------------|--------|-----------------------------|--------|-------------------------------|--------|-----------------|--------|
| Debt securities – available for sale |   | $                   | 80,715 |                        | $      | 234                           |   | $               | (20    | ) | $ | 80,929 |   |
|                                           |        |                     |        |                             |        |                               |        |                 |        |  |  |  |  |

 

The Company recorded realized gains and losses on the sale ofinvestments as follows, in thousands:

 
|                         |   | **Three Months Ended September 30** |   | **Six Months Ended September 30** |   |
|------------------------------|--------|-------------------------------------|--------|-----------------------------------|--------|
|                         |   | **2003**                            |   | **2002**                          |   | **2003** |   | **2002** |   |
| Gross  realized gains        |   | $                                   | 1      |                              | $      | 183 |   | $ | 1 |   | $ | 208 |   |
| Gross  realized losses       |   | —                              |   | (81                               | )      | (2 | ) | (81 | ) |
| Net  realized gains (losses) |   | $                                   | 1      |                              | $      | 102 |   | $ | (1 | ) | $ | 127 |   |

 

6. Nonoperating Gain

 

On April 16, 2003, President Bush signed into law the Emergency WartimeSupplemental Appropriations Act (“Wartime Act”).  Among other items, the legislation includes a $2.3 billiongovernment grant for airlines.  Inaccordance with this Act, for the six months ended September 30, 2003, Mesabarecognized $2.3 million as “other nonoperating income” and Big Sky recognized$0.3 million as “other nonoperating income” and $0.2 million as a reduction of“administrative and other expense” in the accompanying consolidated statementsof operations.

 

7.Stock Options

 

The Company accounts for its stock-based compensation plans using theintrinsic value method prescribed under Accounting Principles Board Opinion No.25, “Accounting for Stock Issued to Employees,” and relatedinterpretations.  The Company hasapproved stock option plans for key employees, directors, consultants andadvisors to the Company.  As such, theCompany records compensation expense for stock options and awards only if theexercise price is less than the fair market value of the stock on themeasurement date.

 

For purposes of the pro forma disclosures of compensation expense underStatement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting forStock-Based Compensation” and SFAS No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure,” the Company uses the Black-Scholesoption model to estimate the fair value of options not subject to variable planaccounting.

 

9

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The following information summarizes the pro forma effects assumingcompensation for such awards had been recorded based upon the estimated fairvalue, in thousands, except per share information:

 
|                                  |   | **Three Months Ended  September 30** |   | **Six Months Ended  September 30** |   |
|---------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                  |   | **2003**                             |   | **2002**                           |   | **2003** |   | **2002** |   |
| Net  income, as reported              |   | $                                    | 3,934  |                               | $      | 2,371 |   | $ | 7,440 |   | $ | 3,947 |   |
| Stock-based  compensation, net of tax |   | (353                                 | )      | (289                               | )      | (658 | ) | (590 | ) |
| Pro  forma net income                 |   | $                                    | 3,581  |                               | $      | 2,082 |   | $ | 6,782 |   | $ | 3,357 |   |
|                                  |   |                                 |   |                               |   |   |   |   |   |
| Earnings  per share – basic:     |   |                                 |   |                               |   |   |   |   |   |
| As  reported                          |   | $                                    | 0.19   |                               | $      | 0.12 |   | $ | 0.37 |   | $ | 0.19 |   |
| Pro  forma                            |   | $                                    | 0.18   |                               | $      | 0.10 |   | $ | 0.33 |   | $ | 0.17 |   |
| Earnings  per share – diluted:   |   |                                 |   |                               |   |   |   |   |   |
| As  reported                          |   | $                                    | 0.19   |                               | $      | 0.12 |   | $ | 0.36 |   | $ | 0.19 |   |
| Pro  forma                            |   | $                                    | 0.17   |                               | $      | 0.10 |   | $ | 0.33 |   | $ | 0.17 |   |

 

InDecember 2002, the Company repriced stock options to purchase 745,000 shares ofthe Company’s common stock with exercise prices ranging from $9.05 to $18.00 toan exercise price of $5.97, which represented the fair market value on the dateof the repricing.  In accordance withFinancial Accounting Standards Board (“FASB”) Interpretation No. 44,“Accounting for Certain Transactions Involving Stock Compensation,” the Companyhas adopted variable plan accounting for these options from the date of therepricing.  The Company recordedcompensation expense of $0.5 million in the quarter ended September 30, 2003and none in any prior period as a result of the repricing.

 

8. Earnings Per Share

 

Basic earnings per common share is computed by dividing net income bythe weighted average number of shares of common stock outstanding during theperiod.  Diluted earnings per share iscomputed by dividing net income by the sum of the weighted average number ofshares of common stock outstanding plus all additional common stock that wouldhave been outstanding if potentially dilutive common shares related to stockoptions and warrants had been issued.

 

10

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The following tables reconcile the number of shares utilized in theconsolidated earnings per share calculations, in thousands, expect pershare information:

 
|                                                                                                         |   | **Three Months Ended  September 30** |   | **Six Months Ended  September 30** |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                                                                                         |   | **2003**                             |   | **2002**                           |   | **2003** |   | **2002** |   |
| Net  income                                                                                                  |   | $                                    | 3,934  |                               | $      | 2,371 |   | $ | 7,440 |   | $ | 3,947 |   |
| For  earnings per common share - basic:                                                                      |   |                                 |   |                               |   |   |   |   |   |
| Weighted  average number of issued shares outstanding                                                        |   | 20,323                               |   | 20,298                             |   | 20,322 |   | 20,298 |   |
| Effect  of dilutive securities:                                                                              |   |                                 |   |                               |   |   |   |   |   |
| Computed  shares outstanding under the Company’s stock option plan utilizing the  treasury stock method |   | 217                                  |   | 4                                  |   | 92 |   | 20 |   |
| For  earnings per common share - diluted:                                                                    |   |                                 |   |                               |   |   |   |   |   |
| Weighted  average common shares and common share equivalents outstanding                                     |   | 20,540                               |   | 20,302                             |   | 20,414 |   | 20,318 |   |
| Earnings  per share -basic                                                                                   |   | $                                    | 0.19   |                               | $      | 0.12 |   | $ | 0.37 |   | $ | 0.19 |   |
| Earnings  per share - diluted                                                                                |   | $                                    | 0.19   |                               | $      | 0.12 |   | $ | 0.36 |   | $ | 0.19 |   |
|                                                                                                         |   |                                 |   |                               |   |   |   |   |   |
| Antidilutive  options and warrants                                                                           |   | 4,510                                |   | 5,964                              |   | 4,530 |   | 5,282 |   |

 

9. Consolidated Comprehensive Income

 

The following table presents the calculation of comprehensiveincome.  Comprehensive income has noimpact on reported net income.  Thecomponents of comprehensive income are as follows, in thousands:

 
|                                                                          |   | **Three Months Ended  September 30** |   | **Six Months Ended  September 30** |   |
|-------------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                                                          |   | **2003**                             |   | **2002**                           |   | **2003** |   | **2002** |   |
| Net  income                                                                   |   | $                                    | 3,934  |                               | $      | 2,371 |   | $ | 7,440 |   | $ | 3,947 |   |
| Unrealized  gains on investments classified as available for sale, net of tax |   | 23                                   |   | 206                                |   | 23 |   | 64 |   |
| Comprehensive  income                                                         |   | $                                    | 3,957  |                               | $      | 2,577 |   | $ | 7,463 |   | $ | 4,011 |   |

 

10. New Accounting Pronouncements

 

In May 2003, the FASB issued SFAS No. 150, “Accounting for CertainFinancial Instruments with Characteristics of both Liabilities andEquity.”  SFAS No. 150 establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity.  SFAS No. 150 is effective for financialinstruments entered into or modified after May 31, 2003, and otherwise becameeffective September 30, 2003.  Theadoption of SFAS No. 150 did not have a material impact on the Company’sconsolidated results of operations, financial position or cash flows.

 

11. Segment Information

 

The Company follows the provisions of SFAS No. 131, “Disclosures aboutSegments of an Enterprise and Related Information”.  SFAS No. 131 establishes annual and interim reporting standardsfor an enterprise’s business segments and related disclosures about itsproducts, services, geographic areas and major customers.  The method for determining what informationto report is based upon the way management organizes the operating segmentswithin the Company for making operating decisions and assessing financialperformance.

 

11

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Prior to the acquisition of Big Sky on December 1, 2002, the Companyhad one reportable segment: Mesaba. After the acquisition of Big Sky, the Company has determined that it hastwo reportable segments:  Mesaba and BigSky.

 

Operating segment information for Mesaba, Big Sky (from the date ofacquisition), and Holdings were as follows, in thousands:

 
|                                    |   | **Three Months Ended  September 30** |    | **Six Months Ended  September 30** |   |
|-----------------------------------------|--------|--------------------------------------|---------|------------------------------------|--------|
|                                    |   | **2003**                             |    | **2002**                           |   | **2003** |   | **2002** |   |
| Operating  revenues:                    |   |                                 |    |                               |   |   |   |   |   |
| Mesaba                                  |   | $                                    | 112,976 |                               | $      | 118,635 |   | $ | 222,845 |   | $ | 231,989 |   |
| Big  Sky                                |   | 4,486                                |    | n/a                                |   | 8,650 |   | n/a |   |
| Holdings  and eliminations              |   | —                               |    | —                             |   | — |   | — |   |
| Consolidated                            |   | $                                    | 117,462 |                               | $      | 118,635 |   | $ | 231,495 |   | $ | 231,989 |   |
| Depreciation  and amortization expense: |   |                                 |    |                               |   |   |   |   |   |
| Mesaba                                  |   | $                                    | 4,141   |                               | $      | 4,708 |   | $ | 8,446 |   | $ | 9,571 |   |
| Big  Sky                                |   | 192                                  |    | n/a                                |   | 383 |   | n/a |   |
| Holdings  and eliminations              |   | 1                                    |    | —                             |   | 4 |   | — |   |
| Consolidated                            |   | $                                    | 4,334   |                               | $      | 4,708 |   | $ | 8,833 |   | $ | 9,571 |   |
| Interest  expense:                      |   |                                 |    |                               |   |   |   |   |   |
| Mesaba                                  |   | $                                    | —  |                               | $      | — |   | $ | — |   | $ | — |   |
| Big  Sky                                |   | 82                                   |    | n/a                                |   | 160 |   | n/a |   |
| Holdings  and eliminations              |   | (61                                  | )       | —                             |   | (113 | ) | — |   |
| Consolidated                            |   | $                                    | 21      |                               | $      | — |   | $ | 47 |   | $ | — |   |
| Income  (loss) before income taxes:     |   |                                 |    |                               |   |   |   |   |   |
| Mesaba                                  |   | $                                    | 7,084   |                               | $      | 5,655 |   | $ | 14,855 |   | $ | 12,322 |   |
| Big  Sky                                |   | (603                                 | )       | n/a                                |   | (1,077 | ) | n/a |   |
| Holdings  and eliminations              |   | 155                                  |    | (90                                | )      | 580 |   | (2,448 | ) |
| Consolidated                            |   | $                                    | 6,636   |                               | $      | 5,565 |   | $ | 14,358 |   | $ | 9,874 |   |
| Capital  expenditures, net:             |   |                                 |    |                               |   |   |   |   |   |
| Mesaba                                  |   | $                                    | 2,323   |                               | $      | 1,583 |   | $ | 4,757 |   | $ | 4,852 |   |
| Big  Sky                                |   | 19                                   |    | n/a                                |   | 26 |   | n/a |   |
| Holdings  and eliminations              |   | 10                                   |    | —                             |   | 10 |   | — |   |
| Consolidated                            |   | $                                    | 2,352   |                               | $      | 1,583 |   | $ | 4,793 |   | $ | 4,852 |   |
| Total  assets at end of period:         |   |                                 |    |                               |   |   |   |   |   |
| Mesaba                                  |   |                                 |    |                               |   | $ | 114,774 |   | $ | 141,484 |   |
| Big  Sky                                |   |                                 |    |                               |   | 10,806 |   | n/a |   |
| Holdings                                |   |                                 |    |                               |   | 143,967 |   | 105,727 |   |
| Eliminations                            |   |                                 |    |                               |   | (7,904 | ) | (13,162 | ) |
| Consolidated                            |   |                                 |    |                               |   | $ | 261,643 |   | $ | 234,049 |   |

 

12. Subsequent Events

 

*Jet Agreement*

On October 7, 2003, Northwest announced that it is consideringexercising its right to terminate the Jet Agreement under which Mesaba leasesand operates the 36 RJ85 regional jets. At Mesaba’s request, the two parties agreed to extend the earlytermination notice period.  If Northwestgives notice of termination not later than December 15, 2003, the Jet Agreementwill terminate on April 25, 2004.

 

12

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The Company is determining the financial impact from the potentialcontract termination.  During the firstsix months of fiscal 2004, approximately 40% of Mesaba’s revenues were derivedfrom the RJ85 operations.  If Northwestterminates the Jet Agreement, Mesaba would experience a substantial reductionin revenue as RJ85 aircraft are removed from service and could incur materialexpenses in winding down jet operations. Mesaba would not be exposed to the lease payments for returned aircraftand would seek to minimize expenses associated with the RJ85 operations.  Mesaba has various assets and liabilities,which could be materially impacted by this possible contract termination.  The following summarizes the significantRJ85 related balance sheet accounts, as of September 30, 2003, in thousands:

 
| Assets                       |   |   |   |
|------------------------------|--------|--------|--------|
| Inventories                  |   | $      | 3,763  |   |
| Property  and equipment, net |   | 7,211  |   |
| Other  assets, net           |   | 3,394  |   |
| Liabilities                  |   |   |   |
| Accrued  maintenance         |   |   | 8,299  |   |

 

Mesaba and Northwest have also agreed to remove five of the RJ85 regionaljets from service.  Three of the RJ85are expected to be removed from service during December 2003 and two in January2004.

 

*Pilot Negotiations*

TheAir Line Pilots Association (“ALPA”) represents Mesaba’s pilots.  Mesaba is currently negotiating with theALPA under Section 6 of the Railway Labor Act for a new agreement.  On October 28, 2003, the ALPA membershipvoted to give its governing body authorization to conduct a strike at a futurepoint in time.  ALPA may not call astrike until a proffer to arbitrate is issued by the National Mediation Boardand declined by one or both parties, and a thirty day cooling off period haselapsed without an agreement being reached.

 

13

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**Item2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

Results of Operations

 

Three Months Ended September 30, 2003 and 2002

The Company’s consolidated net income for the quarter ended September30, 2003 was $3.9 million, or $0.19 per diluted share, compared with net incomeof $2.3 million, or $0.12 per diluted share, for the quarter ended September30, 2002.  On December 1, 2002, theCompany acquired all the outstanding shares of Big Sky and accounted for thetransaction using the purchase method of accounting.  As such, the Company has consolidated Big Sky’s results ofoperations from the acquisition date, December 1, 2002.  For the three months ended September 30, 2003,Big Sky generated operating revenues of $4.5 million and incurred operatingexpenses of $5.0 million.  Becausecomparative information for Big Sky is not included, a detailed discussion ofBig Sky’s operating results and statistics is not presented.

 
| **Mesaba Operating Statistics**      |     | **Three  months ended  September 30** |     |
|--------------------------------------|----------|---------------------------------------|----------|
|                                 | **2003** |                                  | **2002** |   |
| Passengers                           |     | 1,537,022                             |     | 1,577,336 |   |
| Available seat miles (000’s)    |     | 776,363                               |     | 744,514 |   |
| Revenue passenger miles (000’s) |     | 495,981                               |     | 450,811 |   |
| Load factor                          |     | 63.9                                  | %        | 60.6 | % |
| Departures                           |     | 58,492                                |     | 63,148 |   |
| Revenue per available seat mile      |     | $                                     | .146     |   | $ | .159 |   |
| Cost per available seat mile         |     | $                                     | .136     |   | $ | .153 |   |
| Aircraft in service (average)        |     | 105                                   |     | 116 |   |

 
| **Big Sky Operating Statistics**     |     | **Three  months ended  September 30** | ** ** |
|--------------------------------------|----------|---------------------------------------|------------|
|                                 | **2003** |                                  | **2002**   | ** ** |
| Passengers                           |     | 30,055                                |       | n/a |   |
| Available seat miles (000’s)    |     | 20,425                                |       | n/a |   |
| Revenue passenger miles (000’s) |     | 7,604                                 |       | n/a |   |
| Load factor                          |     | 37.2                                  | %          | n/a |   |
| Departures                           |     | 6,294                                 |       | n/a |   |
| Revenue per available seat mile      |     | $                                     | .220       |   | n/a |   |
| Cost per available seat mile         |     | $                                     | .245       |   | n/a |   |
| Aircraft in service (average)        |     | 13                                    |       | n/a |   |

 

Operating Revenues  Total operating revenues decreased 4.8% in the current quarter offiscal 2004 to $113.0 million from $118.6 million in the prior year’s quarterprimarily due to a decrease of 9.5% in completed available seat miles under theAirlink Agreement offset slightly by an increase of 6.7% in block hours flownunder the Jet Agreement and an increase in ground handling activities.

 

Operating Expenses  Total operating expenses decreased 6.5% in the current quarter offiscal 2004 to $105.9 million from $113.3 million in the prior year’s quarterprimarily due to the change in the mix of RJ85 and Saab flying and decrease incurrent period insurance rates and security fees.

 

14

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Mesaba’s operating costs per available seat mile were as follows:

 
|                           |   | **Three months ended September 30** |   |
|--------------------------------|--------|-------------------------------------|--------|
|                           |   | **2003**                            |   | **2002** |   |
| Wages  and benefits            |   | 4.4                                 | ¢ | 4.6 | ¢ |
| Aircraft  fuel                 |   | 0.7                                 |   | 0.9 |   |
| Aircraft  maintenance          |   | 2.6                                 |   | 2.7 |   |
| Aircraft  rents                |   | 3.4                                 |   | 3.6 |   |
| Landing  fees                  |   | 0.2                                 |   | 0.3 |   |
| Insurance  and taxes           |   | 0.3                                 |   | 0.6 |   |
| Depreciation  and amortization |   | 0.5                                 |   | 0.6 |   |
| Administrative  and other      |   | 1.5                                 |   | 2.0 |   |
| Total                          |   | 13.6                                | ¢ | 15.3 | ¢ |

 

Wages and benefits increased 0.4% to $34.1 million in the secondquarter of fiscal 2004 from $34.0 million in the second quarter of fiscal 2003due to the offsetting impact of increased health and dental costs and thedecreased number of employees.

 

Aircraft fuel decreased 19.0% to $5.2 million in the second quarter offiscal 2004 from $6.4 million in the second quarter of fiscal 2003 dueprimarily to a decrease of 10.2% in the number of Saab block hours flown andfavorable rates of fuel burn. Provisions of the Airlink Agreement with Northwest protect Mesaba fromchanges in fuel prices.  Mesaba’s actualcost of fuel, including taxes and pumping fees, was 83.5 cents per gallon forboth periods.  Northwest is responsiblefor fuel for the jet operation.

 

Aircraft maintenance, excluding wages and benefits, decreased 0.4% to$19.9 million in the second quarter of fiscal 2004 from $20.0 million in thesecond quarter of fiscal 2003 due to the offsetting impact of a 4.2% decreasein flight hours and an increase in rates charged under flight hour agreementsand costs to maintain an aging fleet.

 

Aircraft rents decreased 3.4% to $26.1 million in the second quarter offiscal 2004 from $27.0 in the second quarter of fiscal 2003 due to the returnof 10 Saab 340 model aircraft.

 

Landing fees decreased 19.5% to $1.7 million in the second quarter offiscal 2004 from $2.1 million in the second quarter of fiscal 2003 due todecreased Saab departures.  Northwestprovides landing fees for the jet operation at their expense.

 

Insurance and taxes decreased 42.3% to $2.5 million in the secondquarter of fiscal 2004 from $4.3 million in the second quarter of fiscal 2003due primarily to a reduction in the rates charged for war risk insurance andfewer aircraft.

 

Depreciation and amortization decreased 12.0% to $4.1 million in thesecond quarter of fiscal 2004 compared to $4.7 million in the second quarter offiscal 2003 due primarily to reduced capital expenditures.

 

Administrative and other decreased 19.5% to $12.2 million in the secondquarter of fiscal 2004 from $15.2 million in the second quarter of fiscal 2003primarily due to a reduction in customer and outside service costs, therecognition of a prior year bad debt reserve and the temporary suspension ofthe TSA security cost.

 

Consolidated Nonoperating Income (Expense)  Non-operating income decreased to $0.4million in the current quarter of fiscal 2004 from income of $0.6 million forthe prior year quarter primarily due to the impact of lower interest rates onthe Company’s cash and investments.

 

Consolidated Provision for Income Taxes TheCompany’s effective tax rate was 40.7% for the current quarter of fiscal 2004as compared to 57.4% in the prior year quarter.  The Company adjusts its effective tax rate quarterly based onforecasted operating results for the fiscal year.  The rate is affected principally by the levelof nondeductible expenses relative to projected taxable income.

 

15

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Six Months Ended September 30, 2003 and 2002

The Company’s consolidated net income for the period ended September30, 2003 was $7.4 million, or $0.36 per diluted share, compared with net incomeof $3.9 million, or $0.19 per diluted share, for the period ended September 30,2002.  On December 1, 2002, the Companyacquired all the outstanding shares of Big Sky and accounted for thetransaction using the purchase method of accounting.  As such, the Company has consolidated Big Sky’s results ofoperations from the acquisition date, December 1, 2002.  For the six months ended September 30, 2003,Big Sky generated operating revenues of $8.7 million and incurred operatingexpenses of $9.8 million.  Becausecomparative information for Big Sky is not included, a detailed discussion ofBig Sky’s operating results and statistics is not presented.

 
| **Mesaba Operating Statistics**      |     | **Six months  ended  September 30** |     |
|--------------------------------------|----------|-------------------------------------|----------|
|                                 | **2003** |                                | **2002** |   |
| Passengers                           |     | 2,989,982                           |     | 3,003,858 |   |
| Available seat miles (000’s)    |     | 1,490,913                           |     | 1,440,001 |   |
| Revenue passenger miles (000’s) |     | 917,012                             |     | 860,523 |   |
| Load factor                          |     | 61.5                                | %        | 59.8 | % |
| Departures                           |     | 114,507                             |     | 121,817 |   |
| Revenue per available seat mile      |     | $                                   | .149     |   | $ | .161 |   |
| Cost per available seat mile         |     | $                                   | .141     |   | $ | .153 |   |
| Aircraft in service (average)        |     | 106                                 |     | 115 |   |

 
| **Big Sky Operating Statistics**     |     | **Six months  ended****September  30** | ** ** |
|--------------------------------------|----------|----------------------------------------|------------|
|                                 | **2003** | ** **                             | **2002**   | ** ** |
| Passengers                           |     | 57,932                                 |       | n/a |   |
| Available seat miles (000’s)    |     | 42,007                                 |       | n/a |   |
| Revenue passenger miles (000’s) |     | 14,923                                 |       | n/a |   |
| Load factor                          |     | 35.5                                   | %          | n/a |   |
| Departures                           |     | 13,098                                 |       | n/a |   |
| Revenue per available seat mile      |     | $                                      | .206       |   | n/a |   |
| Cost per available seat mile         |     | $                                      | .234       |   | n/a |   |
| Aircraft in service (average)        |     | 13                                     |       | n/a |   |

 

Operating Revenues  Total operating revenues decreased 3.9% in the six months endedSeptember 30, 2003 to $222.8 million from $232.0 million in the prior periodprimarily due to a decrease of 9.0% in completed available seat miles under theAirlink Agreement offset slightly by an increase of 6.9% in block hours flownunder the Jet Agreement and an increase in ground handling activities.

 

Operating Expenses  Total operating expenses decreased 4.4% in the six months endedSeptember 30, 2003 to $210.3 million from $220.1 million in the prior periodprimarily due to the change in the mix of RJ85 and Saab flying and decrease incurrent period insurance rates.

 

Mesaba’s operating costs per available seat mile were as follows:

 
|                           |   | **Six months ended September 30** |   |
|--------------------------------|--------|-----------------------------------|--------|
|                           |   | **2003**                          |   | **2002** |   |
| Wages  and benefits            |   | 4.5                               | ¢ | 4.6 | ¢ |
| Aircraft  fuel                 |   | 0.7                               |   | 0.8 |   |
| Aircraft  maintenance          |   | 2.5                               |   | 2.7 |   |
| Aircraft  rents                |   | 3.5                               |   | 3.7 |   |
| Landing  fees                  |   | 0.2                               |   | 0.3 |   |
| Insurance  and taxes           |   | 0.3                               |   | 0.6 |   |
| Depreciation  and amortization |   | 0.6                               |   | 0.7 |   |
| Administrative  and other      |   | 1.8                               |   | 1.9 |   |
| Total                          |   | 14.1                              | ¢ | 15.3 | ¢ |

 

16

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Wages and benefits increased 2.5% to $67.4 million in the six monthsended September 30, 2003 from $65.8 million in the prior period due primarilyto increased health and dental insurance costs, which were partially offset bythe decreased number of employees.  On aunit basis, the cost went down due to a 3.5% increase in available seat milesin the current period.

 

Aircraft fuel decreased 14.9% to $10.3 million in the six months endedSeptember 30, 2003 from $12.1 million in the prior period due primarily to adecrease of 10.2% in the number of Saab block hours flown and favorable ratesof fuel burn.  Provisions of the AirlinkAgreement with Northwest protect Mesaba from changes in fuel prices.  Mesaba’s actual cost of fuel, includingtaxes and pumping fees, was 83.5 cents per gallon for both periods.  Northwest is responsible for fuel for thejet operation.

 

Aircraft maintenance, excluding wages and benefits, decreased 4.8% to$37.6 million in the six months ended September 30, 2003 from $39.5 million inthe prior period due primarily to a 4.3% reduction in flight hours flown infiscal 2004.

 

Aircraft rents decreased 2.3% to $52.3 million in the six months endedSeptember 30, 2003 from $53.5 million in the prior period due to the return of10 Saab 340 model aircraft following the first quarter of fiscal 2003.

 

Landing fees decreased 11.0% to $3.4 million in the six months offiscal 2004 from $3.8 million in the prior period of fiscal 2003 due todecreased Saab departures.  Northwestprovides landing fees for the jet operation at their expense.

 

Insurance and taxes decreased 40.9% to $5.1 million in the six monthsended September 30, 2003 from $8.6 million in the prior period due primarily toa reduction in the rates charged for war risk insurance and fewer aircraft.

 

Depreciation and amortization decreased 11.8% to $8.4 million in thesix months ended September 30, 2003 compared to $9.6 million in the priorperiod due primarily to reduced capital expenditures.

 

Administrative and other decreased 7.6% to $25.8 million in the sixmonths ended September 30, 2003 from $28.0 million in the prior periodprimarily due to a reduction in customer and outside service costs, therecognition of a prior year bad debt reserve and the temporary suspension ofthe TSA security cost.

 

Consolidated Nonoperating Income (Expense)  Non-operating income increased to $3.3million in the six months ended September 30, 2003 from an expense of $1.3million for the prior period primarily due to the recognition of $2.6 millionin federal grant proceeds recorded in fiscal 2004 for the reimbursement ofsecurity fees remitted to the TSA versus the Company’s recognition of a $2.8million other-than-temporary impairment loss on its investment in a WorldCombond in fiscal 2003.  The increase waspartially offset by a decrease in interest income to $0.8 million from $1.5million in the periods ended September 30, 2003 and 2002 due to lower interestrates on the Company’s cash and investments.

 

Consolidated Provision for Income Taxes: The Company’seffective tax rate was 48.2% for the six months ended September 30, 2003 ascompared to 60.0% in the prior period. The Company adjusts its effective tax rate quarterly based on forecastedoperating results for the fiscal year.  The rate is affected principally by the levelof nondeductible expenses relative to projected taxable income.

 

 

Liquidity and Capital Resources

 

The Company’s working capital increased to $111.8 million with acurrent ratio of 2.6 at September 30, 2003 as compared to working capital of$103.5 million and a current ratio of 2.7 at March 31, 2003.  Cash and cash equivalents increased by $9.1million to $70.0 million at September 30, 2003 due primarily to cash fromoperations of $32.7 million, a net increase in the Company’s investments of$18.7 million, property and equipment additions of $4.8 million and therepayment of debt of $0.1 million.  Longand short-term investments increased $18.7 million to $80.9 million atSeptember 30, 2003 compared to $62.2 million at March 31, 2003.

 

Investments consist principally of municipal securities and corporatebonds and are classified as available-for-sale as of September 30, 2003 andMarch 31, 2003.  Available-for-saleinvestments are reported at fair value with unrealized gains and lossesexcluded from operations and reported as a separate component of shareholders’equity, except for other-than-temporary impairments, which are reported as acharge to current operations and result in a new cost basis for the investment.  The Company classifies investments thatmature within one year as short term. Investments with maturities greater than one year are classified as longterm.

 

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As of September 30, 2003, Mesaba’s fleet consisted of 104 aircraftcovered under operating leases with remaining terms of less than a month to 13years and aggregate monthly lease payments of approximately $9.1 million.  Mesaba has the ability to return to thelessor up to 10****turbo-prop aircraft, which, if all were returned, wouldreduce the Mesaba’s aggregate monthly lease payment by a total of $0.3million.  Mesaba leases all of its Saab340 aircraft, either directly from aircraft leasing companies or throughsubleases with Northwest under operating leases with original terms up to 17years.  Mesaba leases its RJ85 aircraftfrom Northwest under operating leases with terms of up to 10 years.  The Company believes that Mesaba will have sufficientrevenues to make lease payments on its aircraft as long as the current Airlinkand Jet Agreements remain in effect.

 

As of September 30, 2003, Big Sky’s fleet consisted of 13 aircraftcovered under operating leases with remaining terms of three months to 51months and aggregate monthly lease payments of approximately $0.2 million.  Big Sky leases 12 of its aircraft fromleasing companies and an aircraft from a municipality under operating leaseswith initial terms of up to six years. During the three month ended September 30, 2003, Big Sky exercised itsoption to return two aircraft to the lessor. Five of the remaining leases contain purchase options.  Big Sky will depend on maintaining orincreasing passenger boardings to generate sufficient cash flow to pay itsaircraft lease obligations.  A materialreduction in Big Sky’s passenger revenues could jeopardize its ability to makelease payments.

 

On October 7, 2003, Northwest announced that it is consideringexercising its right to terminate the Jet Agreement under which Mesaba leasesand operates the 36 RJ85 regional jets.  At Mesaba’s request, the two parties agreed to extend the earlytermination notice period.  If Northwestgives notice of termination not later than December 15, 2003, the Jet Agreementwill terminate on April 25, 2004.  TheCompany is determining the financial impact from the potential contracttermination.  During the first sixmonths of fiscal 2004, approximately 40% of Mesaba’s revenues were derived fromthe RJ85 operations.  If Northwestterminates the Jet Agreement, Mesaba would experience a substantial reductionin revenue as RJ85 aircraft are removed from service and could incur materialexpenses in winding down jet operations. Mesaba would not be exposed to the lease payments for returned aircraftand would seek to minimize expenses associated with the RJ85 operations.  See Financial Statements Note 12 foradditional information.

 

Approximately 78% of the Company’s accountsreceivable balance as of September 30, 2003 was due from Northwest.  Cancellation of theAirlink or Jet Agreements or Northwest’s failure to make timely payment ofamounts owed to Mesaba or to otherwise materially perform under the Airlink orJet Agreement for any reason would have a material adverse effect on theCompany’s results of operations, financial position and cash flows.

 

The Company has historically relied upon cash and cash equivalents,investments and internally generated funds to support its working capitalrequirements.  Management believes thatfunds from operations will provide adequate resources for meeting non-aircraftcapital needs for the remainder of fiscal 2004.

 

Critical Accounting Policies and Estimates

 

The preparation of the Company’s consolidated financial statements inconformity with GAAP requires the use of estimates, judgments and assumptionsthat affect the reported amounts of assets and liabilities as of the date ofthe consolidated financial statements, revenues and expenses during thereporting period and related disclosures of contingent assets and liabilitiesin the consolidated financial statements and the accompanying notes.  The SEC has defined a company’s mostcritical accounting policies as the ones that are most important to theportrayal of the company’s financial condition and results of operations, andwhich require the company to make its most difficult and subjective judgments,often as a result of the need to make estimates of matters that are inherentlyuncertain.  Based on this definition,the Company has identified its critical accounting policies to include thosediscussed in the following paragraphs. The Company also has other key accounting policies, which involve theuse of estimates, judgments and assumptions. See Note 2 “Summary of Significant Accounting Policies” in the Notes tothe Consolidated Financial Statements included in the Company’s Annual Reporton Form 10-K filed with the SEC, for additional discussion of these items.

 

Management believes that its estimates and assumptions are reasonable,based on information presently available; however, changes in these estimates,judgments and assumptions will occur as a result of future events, andaccordingly actual results could differ from amounts estimated.

 

*Aircraft Propertyand Equipment –*Estimated lives are used to recorddepreciation on aircraft property and equipment.  Aircraft utilization, technology and changes in the businessstrategy or operating agreements with Northwest may affect the economic livesused to record depreciation by Mesaba or Big Sky.  The foregoing may also impact depreciation rates, impairment, orboth.  Management of Mesaba and Big Skyregularly review the estimated useful lives and salvage values for aircraftproperty and equipment.

 

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*Excess and ObsoleteInventories –*Estimated recovery percentages are usedto record obsolescence reserves for parts inventories.  Aircraft utilization, parts availability andchanges in the cost of parts may affect the valuation of parts inventories andobsolescence reserve levels.  Managementof Mesaba and Big Sky regularly review recovery percentages, reserve levels andinventory valuations for parts inventories.

 

*Aircraft Maintenance–*Estimated maintenance costs and anticipated aircraftactivity are used to determine maintenance reserves.  Changes in maintenance contracts, parts and labor costs andaircraft activity may affect the maintenance reserves.  Management of Mesaba and Big Sky regularlyreview airplane activity, expected aircraft return dates, changes in itsmaintenance contracts and parts and labor costs for maintenance reserves.

 

New Accounting Pronouncements

 

In May 2003, the FASB issued SFAS No. 150, “Accounting for CertainFinancial Instruments with Characteristics of both Liabilities andEquity.”  SFAS No. 150 establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity.  SFAS No. 150 is effective for financialinstruments entered into or modified after May 31, 2003, and otherwise becameeffective September 30, 2003.  Theadoption of SFAS No. 150 did not have a material impact on the Company’sconsolidated results of operations, financial position or cash flows.

 

 

Item 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company’s principal market risks are the availability and price ofjet fuel and changes in interest rates.

 

Mesaba and Big Sky have not experienced difficulties with fuelavailability.  As a part of the AirlinkAgreement, Northwest bears the economic risk of fuel price fluctuations forMesaba’s fuel requirements.  As part ofthe Jet Agreement, Northwest provides all fuel at its expense to supportMesaba’s jet operations.  Big Sky issubject to fluctuations in fuel prices, but currently fuel expense is not amaterial cost in relation to the Company’s total operating expenses.  The Company expects that its results ofoperations will not be materially affected by fuel price volatility.

 

The Company’s investment policy requires purchasing investments withhigh credit quality issuers and limits the amount of credit exposure to any oneissuer.  The Company’s investmentsprincipally consist of municipal securities and corporate bonds with varyingmaturity dates, all of which are two years or less.  Because of the credit criteria of the Company’s investmentpolicies, the primary market risk associated with these investments is interestrate risk.  The Company does not usederivative financial instruments to manage interest rate risk or to speculateon future changes in interest rates.

 

 

Item 4.  CONTROLS AND PROCEDURES

 

Based on an evaluation of the Company’s disclosure controls andprocedures as of the end of the period covered by this Quarterly Report on Form10-Q, Paul F. Foley, President and Chief Executive Officer of the Company, andRobert E. Weil, Vice President, Chief Financial Officer and Treasurer of theCompany, have concluded that the Company’s disclosure controls and proceduresare effective in ensuring that information required to be disclosed by theCompany in the reports that it files or submits under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported withinthe time periods specified by the SEC’s rules and forms.  There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthese controls subsequent to the date of the evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 

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**PartII.  OTHER INFORMATION**

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

The Company filed with the SEC a definitive proxy statement dated July23, 2003 in connection with its annual meeting of shareholders held on August21, 2003.  At the annual meeting, theCompany’s shareholders elected the following persons as Class Two directors,each for a term of three years:

 
|                 |   | **Votes For** |   | **Votes Withheld** |   |
|----------------------|--------|---------------|--------|--------------------|--------|
| Richard  H. Anderson |   | 16,961,331    |   | 2,911,122          |   |
| Paul  F. Foley       |   | 17,110,999    |   | 2,761,454          |   |
| Robert  C. Pohlad    |   | 17,094,464    |   | 2,777,989          |   |

 

The Company’s shareholders also ratified the appointment of Deloitte& Touche LLP as the Company’s independent public accountants for the fiscalyear ending March 31, 2004 with 18,248,526 votes “for”, 1,615,588 votes “against”and 8,339 abstentions.  There were nobroker non-votes.

 

The Company’s shareholders also approved and amendment to the Company’sArticles of Incorporation to change the name of the Company to MAIR Holdings,Inc. with 19,685,552 votes “for”, 174,654 votes “against” and 12,247abstentions.  There were no brokernon-votes.

 

**ITEM 5. OTHER INFORMATION**

 

On October 7, 2003, Northwest announced that it is consideringexercising its right to terminate the Jet Agreement under which Mesaba leasesand operates the 36 RJ85 regional jets. At Mesaba's request, the two partiesagreed to extend the early termination notice period. If Northwest gives noticeof termination not later than December 15, 2003, the Jet Agreement willterminate on April 25, 2004. Mesaba and Northwest have also agreed to removefive of the RJ85 regional jets from service. Three of the RJ85 are expected tobe removed from service during December 2003 and two in January 2004. SeeFinancial Statements Note 12 and Management's Discussion and Analysis ofFinancial Condition and Results of Operations for additional information.

 

The Air Line Pilots Association (“ALPA”) represents Mesaba's pilots.Mesaba is currently negotiating with the ALPA under Section 6 of the RailwayLabor Act for a new agreement. On October 28, 2003, the ALPA membership votedto give its governing body authorization to conduct a strike at a future pointin time. ALPA may not call a strike until a proffer to arbitrate is issued bythe National Mediation Board and declined by one or both parties, and athirty-day cooling off period has elapsed without an agreement being reached.

 

**ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K**

 
| **(a)** |   | **Exhibits** |
|---------|--------|--------------|
|    |   |         |
|    |   | 3A           |   | Restated Articles of Incorporation.   Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K  filed August 27, 2003 |
|    |   | 3C           |   | Bylaws.  Incorporated by  reference to Exhibit 3.2 to the Form S-4, Registration No. 333-22977 |
|    |   | 4A           |   | Specimen certificate for shares of the Common Stock of the  Company.  Incorporated by reference to  Exhibit 4.2 to the Company’s Form 8-K filed August 27, 2003 |
|    |   | 4B           |   | Common Stock Purchase Warrant dated October 25, 1996 issued to  Northwest Airlines, Inc. Incorporated by reference to Exhibit 4A to the  Company’s 10-Q for the quarter ended September 30, 1996 |
|    |   | 4C           |   | Common Stock Purchase Warrant dated October 17, 1997 issued to  Northwest Airlines, Inc. Incorporated by reference to Exhibit 4A to the  Company’s 10-Q for the quarter ended September 30, 1997 |
|    |   | 9A           |   | Shareholder’s Agreement regarding election of representative of  Northwest Aircraft Inc. to Board of Directors.  Incorporated by reference to Exhibit 9A to Mesaba’s  Registration Statement on Form S-1, Registration No. 33-820 |
|    |   | 10A          |   | FAA Air Carrier Operating Certificate.  Incorporated by reference Exhibit 10A to Mesaba’s Form 10-K for  the year ended March 31, 1989 |
|    |   | 10B          |   | CAB Part 298 Registration.   Incorporated by reference to Exhibit 10G to Mesaba’s Form 10-K for the  year ended March 31, 1987 |
|    |   | 10C          |   | Airline Services Agreement between Mesaba Aviation, Mesaba Holdings,  Inc. and Northwest Airlines, Inc. dated July 1, 1997 (certain potions of this  agreement are subject to an order granting confidential treatment pursuant to  Rule 24b-2).  Incorporated by  reference to Exhibit 10A to the Company’s Form 10-Q for the quarter ended  September 30, 1997 |
|    |   | 10D          |   | Regional Jet Services Agreement between Mesaba Holdings, Inc., Mesaba  Aviation, Inc. and Northwest Airlines, Inc., dated October 25, 1996 (certain  provisions of this agreement are subject to an order granting confidential treatment  pursuant to Rule 24b-2).  Incorporated  by reference to Exhibit 10A to the Company’s Form 10-Q for the quarter ended  September 30, 1996 |
|    |   | 10E          |   | 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 |
|    |   | 10F          |   | Special Facilities Lease dated as of August 1, 1990 between Charter  County of Wayne, State of Michigan and Mesaba Aviation, Inc. Incorporated by  reference to Exhibit 10B to the Company’s Form 10-Q for the quarter ended  September 30, 1990 |

 

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|   |   | 10G  |   | Ground Lease dated August 1, 1990 between Charter County of Wayne,  State of Michigan and Mesaba Aviation, Inc. Incorporated by reference to  Exhibit 10C to the Company’s Form 10-Q for the quarter ended September  30,1990                                                                                                                                                                            |
|--------|--------|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | 10H  |   | 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                                                                                                                                                                    |
|   |   | 10I  |   | 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                                                                                                                                                                                                               |
|   |   | 10J  |   | 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                                                                                                                                                                                                  |
|   |   | 10K  |   | Term Sheet Proposal for the Acquisition of Saab 340 Aircraft by  Mesaba Aviation, Inc. dated March 7, 1996 (certain portions of this document  have been deleted pursuant to an application for confidential treatment under  Rule 24b-2).  Incorporated by  reference to Exhibit 10U to the Company’s Form 10-K/A for the year ended  March 31, 1996                                               |
|   |   | 10L  |   | Letter Agreement regarding Saab 340B Plus Acquisition Financing dated  March 7, 1996 (certain portions of this document have been deleted pursuant  to an application for confidential treatment under Rule 24b-2).  Incorporated by reference to Exhibit 10V  to the Company’s Form 10-K/A for the year ended March 31, 1996                                                                       |
|   |   | 10M  |   | Letter Agreement of October 25, 1996 relating to Regional Jet  Services Agreement between Mesaba Aviation, Inc. and Northwest Airlines, Inc.  (certain portions of this document have been deleted pursuant to an  application for confidential treatment under Rule 24b-2).  Incorporated by reference to Exhibit 10A  to the Company’s Form 10-Q/A for the quarter ended September 30, 1996       |
|   |   | 10N  |   | Amendment No. 1 to Regional Jet Services Agreement dated April 1,  1998 between Mesaba Holdings, Inc., Mesaba Aviation, Inc. and Northwest  Airlines, Inc. (certain portions of this document have been deleted pursuant  to an application for confidential treatment under rule 24b-2).  Incorporated by reference to Exhibit 10A  to the Company’s Form 10-Q for the quarter ended June 30, 1998 |
|   |   | 10O  |   | Amendment No. 2 to Regional Jet Services Agreement dated June 2, 1998  between Mesaba Holdings, Inc., Mesaba Aviation, Inc. and Northwest Airlines,  Inc. (certain portions of this document have been deleted pursuant to an  application for confidential treatment under rule 24b-2).  Incorporated by reference to Exhibit 10B  to the Company’s Form 10-Q for the quarter ended June 30, 1998  |
|   |   | 10P  |   | Lease Agreement, dated as of July 1, 1999, between Kenton County  Airport Board and Mesaba Aviation, Inc. Incorporated by reference to Exhibit  10AA to the Company’s Form 10-K for the year ended March 31, 2000                                                                                                                                                                                        |
|   |   | 10Q  |   | Ground Lease, dated as of September 1, 1999, between Kenton County  Airport Board and Mesaba Aviation, Inc. Incorporated by reference to Exhibit  10BB to the Company’s Form 10-K for the year ended March 31, 2000                                                                                                                                                                                      |
|   |   | 10R  |   | Letter Agreement, dated November 20, 2001, between Mesaba Holdings,  Inc., Mesaba Aviation, Inc. and Northwest Airlines, Inc. relating to service  expansion and rate reductions.   Incorporated by reference to the Company’s Form 8-K filed November 23,  2001                                                                                                                                    |
|   |   | 10S  |   | Agreement and Plan of Merger among Mesaba Holdings, Inc. Ranger  Acquisition Corp. and Big Sky Transportation Co. dated September 26,  2002.  Incorporated by reference to  the Company’s Form 8-K filed September 27, 2002                                                                                                                                                                         |
|   |   | 10T  |   | Employment Agreement between Big Sky Transportation Co. and Kim B.  Champney dated April 3, 1998.   Incorporated by reference to Big Sky’s Form 10-KSB dated September 28,  1999                                                                                                                                                                                                                    |
|   |   | 10U  |   | Aircraft Hangar Facility Lease Agreement between Metropolitan  Airports Commission Minneapolis - St. Paul and Mesaba Aviation, Inc. dated  September 2002                                                                                                                                                                                                                                                     |
|   |   | 10V  |   | Lease between Spectrum Investment Group, L.L.C. and Mesaba Aviation,  Inc. entered into as of April 25, 2003                                                                                                                                                                                                                                                                                                  |
|   |   | 10W  |   | Amendment to Regional Jet Services Agreement, dated October 7,  2003.  Incorporated by reference to  Exhibit 10.1 to the Company’s Form 8-K filed October 8, 2003                                                                                                                                                                                                                                   |
|   |   | 21   |   | Subsidiaries.  Incorporated by  reference to Exhibit 21 to the Company’s Form 10-Q for the quarter ended  December 31, 2002                                                                                                                                                                                                                                                                         |
|   |   | 31.1 |   | Chief Executive Officer Certification Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.  Filed  herewith                                                                                                                                                                                                                                                                                       |

 

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|   |   | 31.2 |   | Chief Financial Officer Certification Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.  Filed  herewith |
|--------|--------|------|--------|-------------------------------------------------------------------------------------------------------------------------|
|   |   | 32   |   | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.  Filed herewith                          |

 
| **(b)** |   | **Reports on Form 8-K**                                                                           |
|---------|--------|---------------------------------------------------------------------------------------------------|
|    |   |                                                                                              |
|    |   | The Company filed the following reports on Form 8-K during the  quarter ended September 30, 2003: |
|    |   |                                                                                              |
|    |   | (a)                                                                                               | Form 8-K filed on August 1, 2003 containing disclosure under Item 12  regarding the Company’s earnings for the quarter ended June 30, 2003. |
|    |   |                                                                                              |   |
|    |   | (b)                                                                                               | Form 8-K filed on August 27, 2003 containing disclosure under Items 5  and 7 regarding an amendment to the Company’s articles of incorporation  changing its name to MAIR Holdings, Inc. |
|    |   |                                                                                              |   |
|    |   | (c)                                                                                               | Form 8-K filed on September 8, 2003 containing disclosure under Items  5 and 7 regarding the resignation of two directors. |

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf of theundersigned, thereunto duly authorized.

 
|                     | MAIR Holdings, Inc.                                                                                              |
|--------------------------|------------------------------------------------------------------------------------------------------------------|
|                     |                                                                                                             |
| Dated: November 14, 2003 | By:                                                                                                              | /s/ Robert E. Weil |   |
|                     | Vice President, Chief Financial Officer and Treasurer  (principal financial officer and an authorized signatory) |

 

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Exhibit Index

 

31.1 Chief Executive Officer Certification Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. Filed herewith.

 

31.2 Chief Financial Officer Certification Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. Filed herewith.

 

32. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of2002. Filed herewith.

 

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