UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2005

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.

(Exact name of registrant as specified in its charter)

Minnesota		41-1616499
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

150 South Fifth Street, Suite 1360

Minneapolis, Minnesota 55402

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (612) 333-0021

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o.

The aggregate market value of voting stock held by nonaffiliates of the registrant as of September 30, 2004 was approximately $84,000,000.

As of June 1, 2005, there were 20,574,340 shares of common stock of the registrant issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the registrant’s 2005 Annual Meeting of Shareholders are incorporated by reference into the Part III Items 10, 11, 12, 13 and 14 of this Form 10-K.

PART I

Item 1. BUSINESS

MAIR Holdings, Inc. (“Holdings”) is the holding company for Mesaba Aviation, Inc., a regional air carrier based in Minneapolis, Minnesota (“Mesaba”) and Big Sky Transportation Co., a regional air carrier based in Billings, Montana (“Big Sky”). Mesaba and Big Sky are each wholly owned subsidiaries of Holdings. Holdings, Mesaba and Big Sky are referred to herein collectively as the “Company.” Mesaba and Big Sky are the Company’s reportable segments that are managed independently. Additional detail on segment reporting is included in Note 11 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.

Operations

Mesaba

Mesaba operates as a regional air carrier providing scheduled passenger service as “Mesaba Airlines/Northwest Airlink” and “Mesaba Airlines/Northwest Jet Airlink” under two separate agreements with Northwest Airlines, Inc., a wholly owned indirect subsidiary of Northwest Airlines Corporation (“Northwest”), to 109 cities in the United States and Canada from Northwest’s hub airports in Minneapolis/St. Paul, Detroit and Memphis.

Under the Airline Services Agreement (the “Airlink Agreement”), Mesaba operates Saab 340 jet-prop aircraft (“Saab”) for Northwest. This agreement provides for exclusive rights to designated service areas and extends through June 30, 2007. Under the Airlink Agreement, Mesaba recognizes revenue for each completed “available seat mile” (the number of seats in an aircraft multiplied by the number of miles those seats are flown). Additionally, under the Airlink Agreement, Mesaba purchases fuel, ground handling and other services from Northwest. Either Northwest or Mesaba may terminate the Airlink Agreement on 365 days notice. The Airlink Agreement may be terminated immediately by Mesaba or Northwest in the event that the other party is the subject of a bankruptcy or similar proceeding or is divested of a substantial part of its assets. Additionally, the non-defaulting party may terminate the agreement in the event of a breach of a non-monetary provision that remains uncured for a period of more than 30 days after receipt of written notification of such default, or the breach of a monetary provision that remains uncured for a period of more than ten days after receipt of written notification of such default. Northwest may also terminate the Airlink Agreement in the event of certain lease and other performance defaults; change in control events; revocation or failure to obtain Department of Transportation (“DOT”) certification; failure to elect a chief executive officer of the Company and Mesaba reasonably acceptable to Northwest; or if more than 50% of the aircraft subject to the agreement are not operated for more than seven consecutive days or 25% of such aircraft are not operated for more than 21 consecutive days, other than as a result of the Federal Aviation Administration (“FAA”) grounding a specific aircraft type for all carriers.

Under the Regional Jet Services Agreement (the “Jet Agreement”), Mesaba operates Avro RJ85 regional jets (“RJ85”) for Northwest. The Jet Agreement extends through April 25, 2007. Under the Jet Agreement, Mesaba recognizes revenue for each “block hour” flown (the elapsed time between aircraft departing and arriving at a gate). Northwest provides fuel and airport and passenger related services at Northwest’s expense. Either Mesaba or Northwest may immediately terminate the Jet Agreement in the event that the other party is the subject of a bankruptcy or similar proceeding or is divested of a substantial part of its assets. Additionally, the non-defaulting party may terminate the agreement in the event of a breach of a non-monetary provision that remains uncured for a period of more than 30 days

after receipt of written notification of such default, or the breach of a monetary provision that remains uncured for a period of more than ten days after receipt of written notification of such default. Northwest may also terminate the Jet Agreement in the event of certain lease and other performance defaults; change in control events; revocation or failure to obtain DOT certification; failure to elect a chief executive officer of the Company and Mesaba reasonably acceptable to Northwest; if more than 25% of the aircraft subject to the agreement are not operated for more than seven consecutive days, other than as a result of the FAA grounding all RJ85 aircraft for all carriers; or if there is a strike, cessation or interruption of work involving Mesaba pilots, flight attendants or mechanics providing jet service.

Under the agreements, all scheduled flights that Mesaba operates are designated as Northwest flights using Northwest’s designator code in all computer reservation systems, including the Official Airline Guide, with an asterisk and a footnote indicating that Mesaba is the carrier providing the service. In addition, flight schedules of Mesaba and Northwest are closely coordinated to facilitate interline connections, and Mesaba’s passenger gate facilities at the Minneapolis/St. Paul International Airport, Detroit Metropolitan Airport and Memphis International Airport are integrated with Northwest’s facilities in the main terminal buildings, rather than at the more remote commuter air terminals. Mesaba’s RJ85 aircraft are painted in the colors of Northwest Airlines and the Saab aircraft are painted in a distinctive “Northwest Airlink” configuration, with a Northwest logo in addition to Mesaba’s name.

Mesaba, through the agreements, receives ticketing and certain check-in, baggage, freight and aircraft handling services from Northwest at certain airports. In addition, Mesaba receives its computerized reservations services from Northwest. Northwest also performs all marketing, scheduling, yield management and pricing services for Mesaba’s flights.

Pursuant to a non-binding letter of intent, Mesaba and Northwest are currently negotiating a new omnibus airline services agreement intended to replace the Airlink Agreement and Jet Agreement. See the “Recent Developments” section below.

Big Sky

Big Sky operates as a regional carrier based in Billings, Montana, providing scheduled passenger, airfreight, express package and charter services. Big Sky provides scheduled air service to 18 communities in Montana, Colorado, Idaho, North Dakota, Oregon, Washington and Wyoming via its Billings hub. Big Sky operates 65 scheduled flights per weekday with a reduced weekend schedule that provides interline and online connecting services, as well as local market services. Big Sky also has code-sharing agreements with Alaska/Horizon Airlines, America West Airlines and Northwest, where its services are marketed jointly with those air carriers for connecting flights.

Big Sky also provides service between its Billings hub and seven communities primarily in Central/Eastern Montana and between Moses Lake, Washington, Portland, Oregon and Boise, Idaho and between Sheridan, Wyoming and Denver, Colorado under contracts with the DOT’s Essential Air Service (“EAS”) program. The EAS program subsidizes air carriers to provide air service to designated rural communities throughout the country that could not otherwise economically justify that service based on their passenger traffic. The DOT pays EAS subsidies for each departure in a covered market. Big Sky bids on the EAS contracts every two years. In addition, Big Sky continually reviews EAS flying opportunities and makes bids with the DOT for flying where it is operationally and financially feasible.

Competition

The airline industry is highly competitive as a result of the Airline Deregulation Act of 1978 (the “Deregulation Act”), which generally increased competition by eliminating restrictions on fares and route selection. The Deregulation Act also contributed to the withdrawal of national and major carriers from

short-haul markets by allowing them to more easily obtain additional long-haul routes, which can be more efficiently and profitably served by larger jet aircraft. Elimination of barriers to entry into new markets, however, also created greater potential for competing service by other carriers operating small, fuel-efficient aircraft on short-haul routes serving small and medium-sized cities. Mesaba and Big Sky compete with other regional airlines on most routes they serve. Mesaba and Big Sky also face competition from regional carriers offering service to alternative hubs for connecting flights. Other carriers, including major carriers, can at any time institute competing service on routes served by Mesaba or Big Sky.

The Airlink Agreement and Jet Agreement do not prohibit Northwest from contracting with other regional airlines to provide the same services that Mesaba currently provides. Northwest currently has an airline services agreement with Pinnacle Airlines Corp. (“Pinnacle”), and Pinnacle serves many of the same cities as Mesaba. Northwest could choose to expand its agreement with Pinnacle in competition with Mesaba. Northwest could also choose to establish relationships with other regional airlines.

Competitive factors in the airline industry generally include fares, frequency and dependability of service, convenience of flight schedules, type of aircraft flown, airports served, relationships with travel agents, and efficiency and reliability of reservations systems and ticketing services. The compatibility of flight schedules with those of other airlines and the ability to offer through fares and convenient inter-airline flight connections are also important competitive factors. Holdings believes its subsidiaries are competitive with respect to each of such factors because of their relationship with Northwest, established reputation, cost structure and an aircraft fleet that is properly suited for the small and medium-sized cities served.

Fuel

The Company believes that the following arrangements assure an adequate supply of fuel for current and future operations for both Mesaba and Big Sky, provided that Northwest does not experience a supply shortage.

Mesaba

Mesaba has arrangements with Northwest for its fuel requirements. Certain provisions of the Airlink Agreement protect Mesaba from fluctuations in aviation fuel prices while the Jet Agreement requires Northwest to provide RJ85 fuel, at Northwest’s expense, to Mesaba.

Big Sky

Big Sky purchases a majority of its fuel from Northwest. Big Sky purchases the balance of its fuel under arrangements with several fuel suppliers. None of these arrangements provides protection from fluctuations in fuel prices.

Fares

Mesaba

Mesaba derives its passenger revenues by selling its capacity to Northwest at predetermined rates. Mesaba is primarily paid by Northwest per available seat mile under the Airlink Agreement and per completed block hour under the Jet Agreement.

Big Sky

Big Sky generates its passenger revenues from passenger ticket sales through participation in Airline Reporting Corp., a clearinghouse for travel agencies, its own reservations center in Billings, a ticket by mail program and on-line E-ticketing. Big Sky has ticketing and baggage agreements with all major

airlines that serve its region, which allow its services to be sold by those airlines. Big Sky establishes its passenger fares on a market-by-market basis utilizing a combination of factors, including the cost of providing the service based upon projected passenger levels, the competitive price of alternative means of transportation (including both air and surface) and the distance between markets. Big Sky also employs the use of discounts off the base fares for advance ticket purchases and other special needs passengers that are common throughout the airline industry.

Regulations

Pursuant to Federal aviation laws, the DOT and the FAA have certain regulatory authority over the operations of all air carriers. The jurisdiction of the FAA extends primarily to the safety and operational provisions of the Federal Aviation Act, while the responsibility of the DOT involves principally the regulation of certain economic aspects of airline operations.

FAA Regulation

Mesaba and Big Sky each hold an Air Carrier Certificate issued by the FAA under Part 119 of the Federal Aviation Regulations, permitting Mesaba and Big Sky to conduct flight operations in compliance with Part 121 of the Federal Aviation Regulations, which are the same regulatory requirements applicable to major airlines. The FAA regulations to which Mesaba and Big Sky are subject are extensive and include, among other items, regulation of aircraft maintenance and operations, equipment, ground facilities, dispatch, communications, training, weather observation, flight personnel and other matters affecting air safety. To ensure compliance with its regulations, the FAA requires airlines to obtain operating, airworthiness and other certificates that are subject to suspension or revocation for cause. Mesaba and Big Sky hold all certificates necessary for their operations.

DOT Regulation

Mesaba and Big Sky each hold a Certificate of Public Convenience and Necessity issued by the DOT under federal aviation laws. As certificated carriers, Mesaba and Big Sky are required to file quarterly reports with the DOT, including a report of aircraft operating expenses and related statistics.

Transportation Security Administration Regulation

In response to the terrorist attacks of September 11, 2001, Congress enacted the Aviation and Transportation Security Act of 2001 (the “ATSA”). The ATSA created the Transportation Security Administration (the “TSA”) to oversee aviation and airport security. Among other security measures, the ATSA enhanced background checks, provided federal air marshals aboard flights, improved flight deck security, enhanced airline crew security training, improved training of security screening personnel and enhanced airport perimeter access.

Air Transportation Safety and System Stabilization Act

In September 2001, Congress enacted the Air Transportation Safety and System Stabilization Act. This legislation provided cash grants to U.S. airlines to compensate for “direct and incremental losses” incurred from September 11, 2001, through December 31, 2001. Mesaba recognized a pre-tax grant of approximately $0.3 million as “other nonoperating income” in the accompanying consolidated statements of operations in fiscal 2003, in accordance with DOT and applicable authoritative accounting guidance. In addition, Big Sky recognized and received $0.2 million during the period from December 1, 2002 (date of acquisition) to March 31, 2003 under the same program.

Emergency Wartime Supplemental Appropriations Act

In April 2003, Congress enacted the Emergency Wartime Supplemental Appropriations Act (the “Wartime Act”), which included, among other items, a $2.3 billion government grant to U.S. airlines for security fees previously remitted to the TSA and $100 million for reimbursement of aircraft cockpit door

reinforcement costs. In connection with reimbursements under the Wartime Act, for the year ended March 31, 2004, Mesaba recognized $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 statements of operations. Retention of these funds requires compliance with the provisions of the Wartime Act.

Railway Labor Act

The Company’s relations with its labor unions are governed by the Railway Labor Act (the “RLA”). Comprehensive provisions are set forth in the RLA establishing the right of airline employees to organize and bargain collectively and impose a duty upon air carriers and their employees to exert every reasonable effort to make and maintain collective bargaining agreements. The RLA contains detailed procedures, which must be exhausted before a lawful work stoppage may occur, including a formal declaration of an impasse by the National Mediation Board.

Other Regulations

Under the Noise Control Act of 1972 and the Aviation Safety and Noise Abatement Act of 1979, the FAA has authority to monitor and regulate aircraft engine noise. Management of Mesaba and Big Sky believe that their aircraft comply with or are exempt from such regulations and that Mesaba and Big Sky comply with standards for aircraft exhaust emissions and fuel storage facilities issued by the Environmental Protection Agency. As a foreign carrier operating in Canada, Mesaba is subject to regulation by the Transport Canada and has been issued a Foreign Air Carrier Operating Certificate and Canadian Transportation Agency economic licenses. Because Northwest maintains certain contracts with the Department of Defense, Mesaba is subject to that department’s periodic inspections.

Insurance

The Company carries the types of insurance customary in the airline industry, including coverage for public liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers’ compensation. The Company believes that its insurance coverage is adequate as to the amounts and risks covered. However, there can be no assurance that the insurance carried would be sufficient to protect Mesaba and Big Sky adequately in the event of a catastrophic accident or event.

Aircraft Maintenance

The maintenance performed on the Company’s aircraft can be divided into two general categories: routine line maintenance and major overhauls. Mesaba and Big Sky employ their own aircraft, avionics and engine maintenance staffs that perform substantially all routine line maintenance to the aircraft and engines. As of October 2003, Mesaba contracted out most of its major overhauls on airframes, engines and other rotable parts on the Saab and RJ85 aircraft at FAA authorized facilities. Major overhauls on Big Sky’s fleets, including airframes, engines and other rotable parts, are performed internally or at FAA authorized facilities.

Airport and Terminal Services

Mesaba’s ticket counter and baggage-handling space is leased from local airport authorities or other airlines at all of the airports served. In 45 of the cities it serves, Mesaba receives support services under agreements with Northwest. In accordance with the Airlink Agreement, Mesaba pays local airport authorities for the use of landing fields at rates that are based on the number of flights per day, fixed fees, or on the number of aircraft landings and aircraft weight. Northwest pays for Mesaba’s landing fees under the Jet Agreement.

Mesaba receives other revenue from Northwest, Pinnacle and other airlines for ground handling services performed at the Minneapolis/St. Paul, Detroit and other spoke airports.

Big Sky leases airport counter, baggage and ramp space for ground services and customer services at all of the cities it currently serves. Big Sky contracts for ground handling services from other airlines as needed.

Employees

As of March 31, 2005, the Company and its subsidiaries employed approximately 3,950 employees with approximately 45.6% of those employees represented by labor unions. Mesaba had approximately 3,750 (913 part-time) employees and Big Sky had approximately 200 (58 part-time) employees. Neither Mesaba nor Big Sky had any official work stoppages during fiscal 2005. Management, in general, believes that its relations with the Company’s employees are good. The Company’s labor agreements are as follows:

Mesaba

	Approximate
	Number of		Amendable
Employee Group	Employees	Union	Date
Pilots	876	Air Line Pilots Association (“ALPA”)	January 2009
Mechanics	244	Aircraft Mechanics Fraternal Association (“AMFA”)	August 2003
Dispatchers	23	Transportation Workers Union (“TWU”)	May 2005
Flight Attendants	567	Association of Flight Attendants	April 2006
Customer service agents	1,605	None
Management / Administrative / Clerical	435	None
	3,750

Mesaba negotiated a new agreement with ALPA under Section 6 of the RLA, which became effective January 31, 2004. The mechanics, which constitute 6.5% of Mesaba’s workforce, are currently working under an agreement that became amendable in August 2003. Mesaba is currently negotiating with the AMFA under Section 6 of the RLA for a new agreement. Mesaba is also negotiating with the dispatchers, which constitute 0.6% of Mesaba’s workforce.

Big Sky

	Approximate
	Number of		Amendable
Employee Group	Employees	Union	Date
Pilots	56	United Transportation Union	December 2009
Mechanics	23	International Association of Machinists and Aerospace Workers	August 2010
Dispatchers	11	United Transportation Union	December 2009
Customer service agents	76	None
Management / Administrative / Clerical	34	None
	200

During fiscal 2004, Big Sky negotiated a new agreement with the International Association of Machinists and Aerospace Workers, which was ratified in January 2004.

Cyclicality and Seasonality

The airline industry generally is subject to cyclical moves in the economy. Because both personal discretionary travel and business travel may be expected to decline during periods of economic weakness, the airline industry tends to experience poorer financial results during such periods.

Mesaba’s cyclicality is tied to the business and operating decisions of Northwest. Operations of the major airlines continue to be impacted by the rapid growth of low cost airlines, the increasing number of businesses utilizing teleconferencing or web-based meetings and the advent of internet travel web sites, which enable consumers to find travel alternatives. Mesaba has historically shown greater revenues and earnings in the first and second fiscal quarters. Northwest has historically seen increased leisure travel during these periods on domestic and international routes, which contributes to an increased number of flights for Mesaba.

Seasonal factors, primarily weather conditions and passenger demand, historically have affected Big Sky’s monthly passenger boardings. Big Sky has historically shown a higher level of passenger boardings in the July through December period as compared with the January through June period for many of the cities served. As a result of such factors, Big Sky’s revenues and earnings historically have been greater during the July through December period.

Recent Developments

Northwest Letter of Intent

On April 20, 2005, Holdings and Mesaba executed a non-binding letter of intent with Northwest to allow Mesaba to operate 15 Bombardier CRJ-200 regional jets (“CRJ”) under the Northwest Airlink banner, with exclusive rights to the next 20 CRJ-200 or CRJ-440 aircraft Northwest Airlines may order. Mesaba expects to lease the aircraft from Northwest and expects the first aircraft to enter service before the end of 2005. Mesaba expects to enter into a new 10-year omnibus airline services agreement with Northwest covering the operation of the CRJs, Saabs and RJ85s that will replace the existing Airlink Agreement and the Jet Agreement, which are set to expire in 2007. As part of the letter of intent, Mesaba agreed to incur the costs necessary to bring the new CRJ fleet into service.

Holdings and Mesaba are currently negotiating the definitive new omnibus airline services agreement with Northwest, which is subject to final approval by all parties. Upon execution of the definitive agreement, Holdings expects to amend the currently outstanding warrants held by Northwest to reduce the number of shares of the Company’s common stock issuable upon exercise from 4,151,922 shares exercisable at prices from $7.25 to $21.25 per share to an aggregate of 4,112,500 shares exercisable at a price of $8.74 per share. The warrants are expected to expire ten years from the date of the definitive airline services agreement. Sixty percent of the shares are expected to become exercisable upon the delivery of the 15^th CRJ aircraft to Mesaba, and an additional 4% of the shares are expected to become exercisable with each subsequent delivery of the next ten CRJ aircraft. Pursuant to the letter of intent, Holdings also agreed to enter into a registration rights agreement to register the shares of stock currently held by Northwest and the shares of stock that will be issuable to Northwest upon exercise of the warrants.

Litigation Settlement

On May 6, 2005, the Company executed a final settlement agreement with an investment advisor who had, on the Company’s behalf, purchased debt securities issued by WorldCom in the principal amount of $3.2 million. In March 2003, the debt securities were sold for approximately $0.8 million. On May 9, 2005, the Company received a settlement in the amount of $1.8 million in cash. The Company will recognize the recovery resulting from the settlement in the first quarter of fiscal 2006.

Certain Risk Factors Relating to the Company and the Airline Industry

The Company’s operations and financial results are subject to various risks and uncertainties, some of which are described below. The Company could also be adversely affected by additional risks and uncertainties not presently known or believed to be material.

Risks Related to the Mesaba’s Airlink Agreement and Jet Agreement

Mesaba is dependent on its relationship with Northwest as its major customer, and the loss of this relationship would substantially harm the Company’s financial results.

During fiscal 2005, Northwest accounted for 92.7% of the Company’s operating revenues. Additionally, Mesaba consistently carries a receivable due from Northwest between $20 million to $30 million. Northwest has incurred significant losses in the last several years, including a net loss of $862 million in 2004 and a net loss of $450 million in the first quarter of 2005. If Northwest continues to incur operating losses, it may be unable to fulfill its financial obligations and may be forced to initiate bankruptcy proceedings. Because Holdings has no commitment to fund Mesaba’s operations, if Northwest defaults or otherwise fails to make a payment to Mesaba prior to filing for bankruptcy, Mesaba would hold an unsecured prepetition bankruptcy claim that it may be unable to collect. In such circumstances, if Mesaba is unable to secure alternate financing, it could be forced to file for bankruptcy protection. The Company’s business could also be adversely affected by events at Northwest outside of bankruptcy, such as an inability by Northwest to reduce labor expenses and other costs, continued and unsustainable operating losses at Northwest, changes in Northwest’s business plan or model, employee strike or job actions, significant curtailment of service (and thus curtailment of the utilization of the Company’s aircraft), continued volatility of fuel costs and terrorist events. Loss of the Company’s business relationship with Northwest or Northwest’s failure to make timely payment of amounts owed to the Company would have a material adverse effect on the Company’s operations, financial position and cash flows.

If Mesaba’s Airlink Agreement or Jet Agreement with Northwest is terminated, the Company could lose its only significant source of revenue and earnings, Mesaba’s regional fleet, access to airport facilities and the services Northwest provides.

Any termination of the Airlink Agreement or Jet Agreement by Northwest, through bankruptcy or otherwise, would allow Northwest the right to terminate Mesaba’s aircraft leases and subleases covered by the agreements. Northwest would also be allowed to take immediate possession of the aircraft. As a result, the Company would have no significant sources of revenue or earnings. Additionally, the Company risks losing the use of Northwest’s systems, airport facilities and other services that support the Company’s operations. The Company may not be able to find replacement services, or it may not be able to find such services on terms or conditions as favorable as those received from Northwest.

Northwest has not guaranteed that it will grow Mesaba’s regional fleet and Northwest could opt to utilize other regional airlines.

Neither the Airlink Agreement nor Jet Agreement provide that Mesaba’s fleet will grow beyond its existing size. Additionally, the agreements do not prohibit Northwest from contracting with other regional airlines to provide the same services that Mesaba currently provides. Finally, the Company’s letter of intent with Northwest is non-binding, so there is no guarantee that Northwest will place the new CRJ aircraft with Mesaba. Northwest currently has an airline services agreement with Pinnacle, and Pinnacle serves many of the same cities as Mesaba. Northwest could choose to expand its agreement with Pinnacle in competition with Mesaba. Northwest could also choose to establish relationships with other regional airlines.

The Airlink Agreement and Jet Agreement place constraints on Mesaba’s ability to provide airline services to airlines other than Northwest.

Both the Airlink Agreement and Jet Agreement provide that Mesaba cannot use any of its officers, employees, facilities, equipment or aircraft that it uses to provide airline services to Northwest in any new operations with another airline without the prior written consent of Northwest. Any services provided to another airline would have to be provided by a subsidiary independent of Mesaba, and doing so could result in significant costs to the Company.

In connection with the Company’s letter of intent with Northwest, Mesaba has incurred, and will continue to incur, significant expenses in connection with bringing the CRJ aircraft into its fleet, and it may not be reimbursed for these expenses if a definitive agreement is not signed.

The Company’s non-binding letter of intent with Northwest provides that Mesaba will place the first CRJ aircraft in service by October 15, 2005. Although the parties have not yet signed a definitive agreement, Mesaba has incurred and will continue to incur substantial expenses related to adding the CRJ aircraft to its fleet. If an agreement with Northwest is not finalized, there is no assurance that Mesaba will recognize revenue to offset these start-up expenses.

Risks Related to the Company’s Business and Operations

The Company’s success is dependent on its ability to obtain all necessary aircraft, engines, parts and related maintenance and support from various aircraft manufacturers and vendors.

The Company is dependent on various aircraft manufacturers and other vendors to provide sufficient parts and related maintenance and support services on a timely basis. Additionally, the Company relies on various engine manufacturers for parts, repair and overhaul services and other types of support services. The failure of aircraft or engine manufacturers and other vendors to provide parts or related services on a

timely, cost-effective basis could materially and adversely affect the Company’s business, financial condition and results of operations.

Because the Company is unable to pass along increased operating costs, the Company’s earnings will be negatively affected as its fleets continue to age.

As the Company’s fleet of aircraft age, the cost of maintaining the aircraft will likely increase. Because many aircraft components are required to be replaced after specified numbers of flight hours or take-off and landing cycles, and because new aviation technology may be required to be retrofitted, the cost to maintain aging aircraft will generally exceed the cost to maintain newer aircraft. Any material increase in such costs will have a material adverse effect on the Company’s business, financial condition and results of operations.

If Mesaba loses certain of its ground handling business, the Company’s results of operations could be materially affected.

Mesaba performs various ground handling services for Northwest and Pinnacle at Minneapolis, Detroit and certain spoke stations. Ground handling business is highly competitive, and airlines are constantly reviewing their cost structures to locate the most cost-effective ground handling providers. If Northwest or Pinnacle terminate Mesaba’s ground handling services, the Company’s financial results would be materially affected, both through a loss of revenue and increased transition expenses.

The Company could incur significant costs if it experiences difficulty finding, training and retaining employees.

The Company’s business is labor-intensive, and the Company requires large numbers of pilots, flight attendants, maintenance technicians and other personnel. The airline industry has from time to time experienced a shortage of qualified personnel, specifically pilots and maintenance technicians. In addition, as is common with most of the Company’s competitors, the Company has faced considerable turnover of its employees. For example, the Company’s pilots, flight attendants and maintenance technicians occasionally leave to work for larger airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines are financially able to offer. In the event of a significant increase in the turnover of employees, the Company would incur significantly higher training costs than would otherwise be necessary. The Company cannot provide assurance that it will be able to recruit, train and retain the qualified employees it requires to carry out its business plan.

The Company could be adversely affected by the highly competitive nature of the airline industry.

The airline industry is highly competitive, and Northwest competes not only with other regional carriers, but also with low-cost airlines and major airlines on many of its routes, including the routes that Mesaba flies. Some of these competitors are significantly larger and possess greater resources than Northwest. Moreover, any new entry in the markets Mesaba serves could lessen the economic benefits Northwest derives from servicing these markets. Finally, Big Sky also competes with low-cost and regional carriers on its routes, and it faces the same competitive challenges described above.

The Company’s ability to diversify within the airline industry may be limited by the terms of various collective bargaining agreements and by other airlines’ business agreements.

Mesaba’s labor collective bargaining agreement with its own pilots limits the types of aircraft Big Sky may fly. Mesaba’s and Big Sky’s ability to provide regional service to other major air carriers may also be limited by those

carriers’ existing relationships with other regional operators. Additionally, many of the labor collective bargaining agreements of major airlines, including Northwest, contain scope clause restrictions that limit the airlines’ ability to add new regional jets. These factors could prevent the Company from pursuing future diversification opportunities.

The Company’s compliance with various regulations governing the airline industry can be costly, and the Company could be harmed if it fails to comply with such regulations.

Airlines are subject to extensive regulatory and legal requirements that involve significant compliance costs that result in increased costs for passengers and the Company. The FAA, DOT and TSA periodically propose additional laws, regulations, taxes and airport rates and charges. Such measures could have the effect of raising ticket prices, reducing revenue, increasing costs or reducing demand for air travel. The Company expects to continue incurring expenses to comply with existing and future regulations. Moreover, if the Company fails to comply with applicable regulations, it may be subject to sanctions, including the following:

• warning letters;

• fines;

• injunctions;

• orders relating to grounding of aircraft, inspection of aircraft, installation of new safety-related items and removal and replacement of certain aircraft parts; or

• criminal prosecutions.

Future terrorist attacks, other world events, general economic conditions and other factors beyond the Company’s control could substantially harm the Company.

The terrorist attacks of September 11, 2001 and the prolonged unrest in the Middle East materially affected and continue to affect the airline industry. Concerns about further terrorist attacks have had a negative impact on air travel demand. In addition, security procedures introduced at airports since the attacks have increased the inconvenience of air travel, both in reality and in customer perception, leading to further reduction in demand. Additional terrorist attacks, the fear of such attacks or continued conflict in Iraq or other countries could further affect the airline industry and could cause general instability in financial markets.

Because a substantial portion of air travel, including business travel, is discretionary, the industry tends to experience adverse financial results during general economic downturns. Soft economic conditions continue to put pressure on the profitability of the industry. Any general decline in passenger traffic may harm the Company’s business.

The Company’s operations are also subject to delays caused by factors beyond its control, including air traffic congestion at airports, adverse weather conditions and increased security measures. Such delays frustrate passengers, reduce aircraft utilization and increase costs, all of which may affect profitability and harm the Company’s financial condition and results of operations.

The Company is increasingly dependent upon technology in its operations, and any failure of such technology could adversely affect the Company.

The Company has made, and will continue to make, substantial investments in technology to manage its operations. In particular, the Company’s systems operations control center, which oversees daily flight operations, is dependent on a number of technology systems to operate effectively. The Company’s

technology systems may be vulnerable to various sources of interruption due to events beyond the Company’s control, including natural disasters, terrorist attacks, computer viruses and hackers. In addition, large-scale interruption in technology on which the Company depends, such as power, telecommunications or the Internet, could substantially disrupt the Company’s operations.

Any airline accident in which the Company is involved could subject the Company to substantial liability and seriously harm the Company’s financial condition and results of operations.

An accident involving Company aircraft could result in injuries and loss of life, and the Company could experience significant claims from injured persons and surviving relatives. An accident could also result in substantial property damage, loss of aircraft from service and adverse publicity for the Company. Airlines are required by the DOT to carry liability insurance. Although the Company believes its liability insurance is in amounts and of the type generally consistent with industry practice, substantial claims resulting from an accident in excess of insurance coverage would harm the Company’s business and financial results. Any resulting claims would also be costly to defend and could harm the Company’s reputation. Moreover, any aircraft accident, even if fully insured or not directly involving Mesaba or Big Sky, could cause a public perception that flying is less safe or reliable than other transportation alternatives, which could harm the Company’s financial condition and results of operations.

The Company is subject to collective bargaining agreements with several of its employee groups, and any failure to successfully negotiate these agreements could subject the Company to strikes and increased labor costs, either of which could negatively impact the Company’s financial performance.

Labor costs are a significant component of the Company’s expenses, comprising 33.2% of total operating expenses in fiscal 2005. Several of the Company’s employee groups have separate bargaining agreements and may make demands that would increase operating expenses, adversely affecting profitability. Mesaba is currently negotiating with AMFA for a new agreement. The existing agreement became amendable in August 2003. Mesaba is also currently negotiating with the TWU, whose agreement became amendable in May 2005. The Company cannot predict the outcome of these negotiations. If the Company is unable to reach agreement on the terms of any collective bargaining agreement or experiences widespread employee dissatisfaction, there could be work slowdowns or stoppages. Any sustained work stoppages could adversely affect Mesaba’s ability to fulfill its obligations under the Airlink Agreement and Jet Agreement and could have an adverse effect on the Company’s financial condition and results of operations.

Risks Related to the Company’s Stock

Together, certain of the Company’s shareholders own or have the right to acquire a significant portion of the Company’s stock and could ultimately control decisions regarding the Company.

Northwest owns 27.5% of the Company’s common stock. Northwest also owns warrants to purchase an aggregate of 4,151,922 shares of the Company’s common stock. Additionally, several other shareholders also own significant blocks of the Company’s common stock. Because the parties described above currently own a large portion of the Company’s stock, they may be able to determine or significantly influence the outcome of corporate actions requiring shareholder approval. As a result, these parties may be in a position to control matters affecting the Company, including decisions as to the Company’s direction and policies; future issuances of securities; incurrence of debt; amendments to the Company’s articles of incorporation and bylaws; payment of dividends on the Company’s common stock; and acquisitions, sales of the Company’s assets, mergers or similar transactions, including transactions involving a change of control. As a result, some investors may be unwilling to purchase the Company’s common stock. In addition, if the demand for the Company’s common stock is reduced because of these

shareholders’ control of the Company, the price of the Company’s common stock could be materially depressed.

Future sales of the Company’s common stock by its shareholders could depress the price of the Company’s stock.

Sales of a large number of shares of the Company’s common stock or the availability of a large number of shares for sale could adversely affect the market price of the Company’s common stock. As of March 31, 2005, the Company had 20,574,340 shares of common stock outstanding. Several of the Company’s shareholders own substantial blocks of the Company’s common stock. Additionally, along with the shares of stock it currently owns, Northwest could own an additional large block of the Company’s common stock upon exercise of its warrants. In connection with the letter of intent with Northwest, the Company has agreed to enter into a registration rights agreement to register the shares of stock owned by Northwest (including those shares underlying its warrants). Following such registration, future sales of those shares, or future sales of other large blocks of the Company’s common stock that are already registered, could substantially depress the Company’s stock price.

Any future exercises of warrants by Northwest could substantially dilute the Company’s common stock.

As of March 31, 2005, Northwest holds warrants exercisable for an aggregate of 4,151,922 shares of the Company’s common stock at prices ranging from $7.25 per share to $21.25 per share. As described in the previous “Recent Developments” section, if the Company enters into an omnibus airline services agreement, it expects to amend these warrants to change the exercise price to $8.74 per share and to decrease the number of shares issuable upon exercise to 4,112,500 shares. Holders of the Company’s common stock, therefore, could experience substantial ownership dilution if Northwest elects to exercise these warrants.

The Company’s stock price may continue to be volatile.

In the past two fiscal years, the market price of the Company’s common stock has ranged from a low of $5.52 per share to a high of $10.11 per share. Because the Company’s stock is thinly traded, its market price is sensitive and may continue to experience substantial fluctuations due to a variety of factors, including the following:

• failure of the Company’s operating results to meet analysts’ or investors’ expectations in any quarter;

• securities analysts’ estimates;

• material announcements by the Company, Northwest or the Company’s competitors;

• public sales of a substantial number of shares of the Company’s common stock;

• regulatory actions; or

• general market conditions.

Anti-takeover provisions of the Company’s articles of incorporation and bylaws and of Minnesota law could discourage, delay or prevent a change in control.

The Company’s articles of incorporation and bylaws, along with Minnesota law, could discourage, delay or prevent persons from acquiring or attempting to acquire the Company. The Company’s articles of incorporation authorize the board of directors, without action by the Company’s shareholders, to designate and issue preferred stock in one or more series, with such rights, preferences and privileges as the board of directors shall determine. The Company’s articles of incorporation and bylaws also mandate

a classified board of directors, which makes changing control of the board more difficult. The Company’s bylaws grant the board of directors the authority to adopt, amend or repeal all or any of such bylaws, subject to the power of the shareholders to change or repeal such bylaws. The Company’s bylaws also limit who may call meetings of the Company’s shareholders.

As a public corporation, the Company is prohibited by the Minnesota Business Corporation Act, except under certain specified circumstances, from engaging in any merger, significant sale of stock or assets or business combination with any shareholder or group of shareholders who own at least 10% of the Company’s common stock.

Available Information

The Company maintains a website at www.mairholdings.com. On its website, free of charge, the Company makes available its Annual Report on Form 10-K and links to the SEC website for other public filings. The Company’s Code of Ethics for its Chief Executive Officer and financial officers is also available on its website. All information is also available in print upon written request to the Company’s General Counsel at 150 South Fifth Street, Suite 1360, Minneapolis, Minnesota 55402. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

Item 2. PROPERTIES

Aircraft

Mesaba

The following table sets forth certain information as to Mesaba’s passenger aircraft fleet as of March 31, 2005:

			Approximate	Approximate
	Number of	Seating	Single Flight	Average Cruising
Type of Aircraft	Aircraft	Capacity	Range (miles)	Speed (MPH)
Avro RJ85	35	69	1,400	410
Saab 340	63	30/33/34	500	300

The RJ85 aircraft are pressurized jet airplanes with galleys, dual class cabins, standup headroom, lavatories, airborne communications addressing and reporting system, radar, ground proximity warning, traffic collision avoidance and de-icing systems. The Saab aircraft are pressurized jet-prop airplanes with galleys, standup headroom, lavatories, radar, global positioning, ground proximity warning, traffic collision avoidance and de-icing systems. All of Mesaba’s aircraft comply fully with all current regulations issued by the FAA.

Mesaba leases or subleases its RJ85 aircraft from Northwest under operating leases with initial terms of up to ten years. The lease and sublease agreements for the RJ85 with Northwest contain certain requirements of Mesaba regarding the payment of taxes on the aircraft, acceptable use of the aircraft, the level of insurance to be maintained, the maintenance procedures to be performed and the condition of the aircraft upon their return to Northwest. The Jet Agreement allows Mesaba to return aircraft to Northwest upon the occurrence of certain events, including termination or breach of the Jet Agreement.

Mesaba leases its Saab aircraft, either directly from aircraft leasing companies, through leases with Pinnacle under operating leases with initial terms of up to seven years, or through subleases with Northwest under operating leases with initial terms of up to 17 years. The lease and sublease agreements with the aircraft leasing companies, Pinnacle and Northwest contain certain requirements of Mesaba regarding the payment of taxes on the aircraft, acceptable use of the aircraft, the level of insurance to be maintained, the maintenance procedures to be performed and the condition of the aircraft upon their return. The Airlink Agreement allows Mesaba to return aircraft to Northwest upon the occurrence of certain events, including termination of the Airlink Agreement.

As of March 31, 2005, Mesaba’s existing fleet of RJ85 and Saab aircraft had remaining lease terms of up to 11 years. The current aggregate monthly lease payments for all Mesaba aircraft is approximately $8.5 million.

Big Sky

The following table sets forth certain information as to Big Sky’s passenger aircraft fleet as of March 31, 2005.

			Approximate	Approximate
	Number of	Seating	Single Flight	Average Cruising
Type of Aircraft	Aircraft	Capacity	Range (miles)	Speed (MPH)
Operating:
Metro III /23	4	19	750	300
Beechcraft 1900D	5	19	750	325
Non Operating:
Metro III	4

All of Big Sky’s aircraft are pressurized jet-prop airplanes with radar, ground proximity warning, traffic collision avoidance and de-icing systems. All of Big Sky’s operating aircraft comply fully with all current regulations issued by the FAA.

In January 2005, Big Sky entered into a letter of intent to lease ten Beechcraft B1900D aircraft from Mesa Air Group, Inc., to transition from its Metro fleet. During March 2005, Big Sky parked four Metros, took delivery of five Beechcraft aircraft and began flying them. Big Sky will take delivery of the remaining five Beechcraft during fiscal 2006 and the Metro fleet will be removed from service. Big Sky will attempt to dispose of the Metro aircraft through subleases or other means.

Big Sky leases all of its Metro aircraft from leasing companies and its Beechcraft aircraft from Mesa Air Group. The lease agreements contain certain requirements of Big Sky regarding the payment of taxes on the aircraft, acceptable use of the aircraft, the level of insurance to be maintained, the maintenance procedures to be performed and the condition of the aircraft upon their return. The leases on five Metro aircraft allow Big Sky to return the aircraft to the lessor upon the occurrence of certain events and contain purchase options.

As of March 31, 2005, Big Sky’s operating fleet of Metro and Beechcraft aircraft had remaining lease terms of seven months to 60 months and aggregate monthly lease payments of approximately $0.2 million. The four nonoperating Metro aircraft are parked and pending disposition as part of the fleet transition. The current aggregate monthly lease payments for these nonoperating aircraft are approximately $50,000. As of March 31, 2005, the Company expensed

approximately $1.0 million related to the remaining lease payments on the nonoperating aircraft and other estimated net costs of the aircraft’s return to the lessor.

Facilities

Holdings

Holdings’ executive offices are located in downtown Minneapolis, Minnesota. Holdings leases approximately 2,000 square feet of office space for approximately $3,800 per month. The lease commenced in October 2003. In May 2005, Holdings entered into a new lease in the same building for approximately 3,370 square feet of office space with lease payments of approximately $6,000 per month. The lease expires on September 30, 2010 but contains an early termination provision allowing the lease to be cancelled on September 30, 2007.

Mesaba

Mesaba leases an aircraft hangar facility from the Metropolitan Airports Commission. Under this 25-year agreement, Mesaba leases approximately 366,000 square feet of maintenance facilities, maintenance offices, ramp, parking and unimproved land, of which approximately 87,000 square feet is for the new maintenance hangar facility. The lease payments of approximately $111,000 per month commenced in October 2003. Mesaba has a ten-year lease agreement for approximately 33,000 square feet of office space for its principal executive offices located in Eagan, Minnesota. The lease payments of approximately $35,000 per month commenced in January 2004. The lease expires on December 31, 2013 but contains an early termination provision allowing the lease to be cancelled at the end of seven years.

Mesaba subleases approximately 21,000 square feet of office and training support space at the Pan-Am International Flight Academy in Eagan, Minnesota for its flight operations training center. Mesaba pays approximately $27,000 per month under the terms of this sublease, which has a term of 15 years and expires in January 2017.

Mesaba leases approximately 497,000 square feet of facilities, ramp, parking and unimproved land at the Cincinnati/Northern Kentucky Airport under separate ground and facilities leases. The facilities lease covers approximately 126,000 square feet of hangar and maintenance space, and Mesaba pays monthly rentals of approximately $92,000 until July 1, 2029 as part of a special facilities bond financing provided by the Cincinnati/Northern Kentucky Airport Authority. Pursuant to the guaranty agreement, Holdings unconditionally guarantees full and prompt payment of the bonds. The ground lease has a 30-year term concurrent with the facilities lease. Mesaba pays approximately $12,000 per month under the ground lease.

Mesaba leases approximately 334,000 square feet of ramp, parking and unimproved land at the Detroit Metropolitan Airport. The hangar facility, of approximately 60,000 square feet, located on the property was paid in full in fiscal 2003. The ground lease has a 20-year term with monthly lease payments of approximately $10,000. Lease payments are subject to an annual adjustment on January 1 each year based upon the percentage change in an index published by the Bureau of Labor Statistics of the U.S. Department of Commerce.

Mesaba leases approximately 38,000 square feet of hangar and office space located on approximately 102,000 square feet of land and parking areas of which Mesaba is ground lessee at the Central Wisconsin Airport in Mosinee, Wisconsin. Mesaba pays approximately $3,000 per month under the terms of the ground and facility lease, which expire on December 31, 2011, subject to two ten-year renewal options.

Big Sky

Big Sky’s main hangar and principal offices are located at the Logan International Airport in Billings, Montana. The main facility consists of a 12,000 square foot building that can hold three aircraft for maintenance, a parts warehouse, back shop area and two floors of offices. A two-story building adjacent to the hangar houses Big Sky’s general offices. These buildings are situated on approximately 83,000 square feet of land owned by the City of Billings and leased to Big Sky on long-term facility and ground leases. The facility lease has a 20-year term and the ground lease has a 26-year term. The combined monthly lease payment is approximately $7,000.

Item 3. LEGAL PROCEEDINGS

On October 4, 2002, Fairbrook Leasing, Inc., Lambert Leasing, Inc. and Swedish Aircraft Holdings AB (“Saab Leasing”) filed a declaratory judgment action against Mesaba relating to 20 Saab 340A (“340A”) aircraft leased by Mesaba. Saab Leasing sought a judicial declaration that the terms of the leases applicable to each of the 340A aircraft are governed by a March 7, 1996 term sheet proposal rather than the parties’ subsequent agreements and conduct. In a December 8, 2003 order, the District Court declared the term sheet proposal a binding preliminary agreement requiring Mesaba to negotiate in good faith toward the execution of long-term agreements for each of the 340A aircraft. Mesaba appealed the District Court’s ruling.

On August 13, 2004, relying on the District Court’s declaratory judgment ruling, Saab Leasing filed a separate action in the District Court alleging approximately $35 million in damages for past due and future aircraft lease obligations. Mesaba denies the allegations in Saab Leasing’s complaint and contends that it has fulfilled and will continue to fulfill its existing obligations.

On May 19, 2005, the U.S. Court of Appeals for the Eighth Circuit affirmed the District Court’s declaratory judgment ruling. Despite the Eighth Circuit’s ruling, Mesaba believes, based on advice from its legal counsel, that it has defenses in the damages case that will limit Saab Leasing’s ability to recover damages. Nevertheless, there can be no assurance that the District Court in the damages case will agree with Mesaba’s analysis. Therefore, the ultimate outcome of this dispute cannot be predicted with certainty.

As of March 31, 2005, the Company did not establish an accrual with regard to this litigation. Accordingly, an adverse outcome to this matter could have a material impact on the Company’s financial condition and results of operation.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the Company’s shareholders during the three month period ended March 31, 2005.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company’s common stock is traded under the symbol “MAIR” on the NASDAQ National Market.

The following table sets forth, for the periods indicated, the high and low price per share for the Company’s common stock for the two most recent fiscal years. Quotations for such periods are as reported by NASDAQ for National Market issues. The Company has not issued cash dividends since September 1995 and does not currently intend to do so in the future.

	Fiscal 2005				Fiscal 2004
Quarter	High		Low		High		Low
First	$	9.52	$	7.11	$	6.42	$	5.52
Second	$	9.30	$	7.55	$	7.70	$	5.86
Third	$	9.60	$	8.11	$	7.99	$	6.02
Fourth	$	9.60	$	7.97	$	10.11	$	7.22

On June 1, 2005, the number of holders of record of common stock was 648.

The transfer agent for the Company’s common stock is Wells Fargo Bank Minnesota, National Association, 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone: (651) 450-4064.

Equity Compensation Plan Information

				Number of securities
				remaining available for
	Number of securities to	Weighted average		future issuance under
	be issued upon exercise	exercise price of		equity compensation plans
	of outstanding options,	outstanding options,		(excluding securities
Plan Category	warrants and rights (a)	warrants & rights (b)		reflected in column (a))(c)
Plans approved by security holders	1,898,551	$	7.07	800,251

The equity compensation plans approved by the Company’s shareholders are the 1994 Stock Option Plan, the 1996 Director Stock Option Plan and the 2000 Stock Incentive Plan. The 2000 Stock Incentive Plan contains a provision that automatically increases the authorized shares available for grant on September 1 of each year by the lesser of 300,000 or 1% of the then outstanding common shares. See Item 8, “Financial Statements and Supplementary Data” Note 9, for additional information regarding the Company’s equity compensation plans.

Item 6. SELECTED FINANCIAL DATA

The following tables set forth selected financial data with respect to the Company as of the dates and for the periods indicated. The selected financial data has been derived from the Company’s audited consolidated financial statements, which have been restated to give effect to the restatement discussed in Note 14 to the Company’s Consolidated Financial Statements. The financial data set forth below should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7.

	For the Years Ended March 31 (in thousands, except per share data)
			As restated
	2005		2004		2003(1)		2002		2001
Statement of Operations Data:
Operating revenues	$	456,067	$	449,079	$	456,880	$	416,913	$	439,803
Operating expenses	447,428		445,053		448,549		416,077		411,623
Operating income	$	8,639	$	4,026	$	8,331	$	836	$	28,180

Net income	$	7,355	$	4,496	$	4,151	$	7,828	$	19,083

Net income per share-basic	$	0.36	$	0.22	$	0.20	$	0.39	$	0.94
Weighted average number of issued shares outstanding	20,505		20,334		20,308		20,289		20,288

Net income per share-diluted	$	0.35	$	0.22	$	0.20	$	0.38	$	0.91
Weighted average common and potentially dilutive common shares outstanding outstanding-diluted	21,050		20,562		20,357		20,601		20,941

(1) Statement of operations data includes the results of operations of Big Sky since the date of acquisition, December 1, 2002.

	As of March 31 (in thousands)
			As restated
	2005		2004		2003 (1)		2002		2001
Balance Sheet Data:
Current assets	$	187,547	$	174,934	$	158,976	$	162,621	$	156,740
Property and equipment, net	38,421		39,722		43,798		50,615		56,248
Long-term investments	43,240		39,984		32,162		4,068		—
Other noncurrent assets, net	11,746		14,167		15,052		8,758		10,966
Total assets	$	280,954	$	268,807	$	249,988	$	226,062	$	223,954

Current liabilities	$	82,206	$	77,098	$	65,372	$	44,781	$	46,566
Other noncurrent liabilities	6,069		7,448		7,161		8,221		13,037
Shareholders’ equity	192,679		184,261		177,455		173,060		164,351
Total liabilities and shareholders’ equity	$	280,954	$	268,807	$	249,988	$	226,062	$	223,954

(1) Balance sheet data includes Big Sky, which was acquired on December 1, 2002.

	For the Years Ended March 31
	2005			2004			2003 (4)			2002			2001
Selected Operating Data:
Mesaba
Passengers	5,623,731			5,596,721			5,658,006			5,650,500			6,207,400
Available seat miles (1)	3,064,167			2,904,198			2,822,140			2,739,946			2,948,239
Revenue passenger miles (2)	2,003,910			1,774,931			1,646,114			1,571,042			1,725,460
Load factor (3)	65.4		%	61.1		%	58.3		%	57.3		%	58.5		%
Block hours flown	287,482			290,270			300,049			298,349			339,198
Departures	207,067			219,009			233,160			240,068			269,596
Revenue per available seat mile	$	0.144		$	0.149		$	0.160		$	0.152		$	0.149
Cost per available seat mile	$	0.139		$	0.145		$	0.155		$	0.152		$	0.139
Big Sky
Passengers	85,455			105,913			39,587
Available seat miles (1)	59,284			75,188			29,810
Revenue passenger miles (2)	21,630			27,066			10,630
Load factor (3)	36.5		%	36.0		%	35.7		%
Block hours flown	16,396			20,307			9,456
Departures	19,423			23,245			8,415
Revenue per available seat mile	$	0.254		$	0.219		$	0.193
Cost per available seat mile	$	0.337		$	0.267		$	0.262

(1) Available seat miles (“ASM”) are determined by multiplying the number of seats available for passengers by the number of miles flown. Amounts are in thousands.

(2) Revenue passenger miles are determined by multiplying the number of fare paying passengers carried by the distance flown. Amounts are in thousands.

(3) Load factor is determined by dividing revenue passenger miles by available seat miles.

(4) Selected operating data for Big Sky is from the date of acquisition, December 1, 2002.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations has been restated to give effect to the restatement discussed in Note 14 to the consolidated financial statements included in Item 8, and should be read in conjunction with the accompanying consolidated financial statements. The Company’s operations and financial results are subject to various risks and uncertainties associated with the airline industry. See “Certain Risk Factors Relating to the Company and the Airline Industry” in Item 2.

Year in Review and Outlook

Summary

Fiscal 2005 was a rebuilding year for the Company. After Mesaba reached a new pilot agreement that extends through January 2009 and reaffirmed the Jet Agreement with Northwest through April 2007 in late fiscal 2004, Mesaba brought the five grounded RJ85s back into service in the first quarter of fiscal

2005 and increased the utilization of that fleet. Traffic built steadily in the summer, but Mesaba subsequently faced some very challenging weather and irregular operations in its hubs, especially in Detroit, during the Christmas and winter periods. Mesaba also focused on process discipline in the ground handling at its hub operations and began providing CRJ deicing and online luggage transfer for Northwest at Detroit. By March, Mesaba was focused on responding to a request for proposal from Northwest for new 50 seat regional jet operations. Separately, Big Sky initiated a fleet transition of its own from the Metros to the Beechcraft 1900D. Big Sky completed a new fleet campaign by putting the Beechcraft 1900D on its air carrier certificate in 60 days.

Outlook

Given the airline industry’s continued economic uncertainty, the Company’s will focus its efforts in fiscal 2006 on three main strategies:

• Maintain outstanding operating performance at each subsidiary while the subsidiaries focus on the following initiatives:

Mesaba

• Mesaba will focus on finalizing a new omnibus airline services agreement with Northwest, obtaining its CRJ certificate and bringing 15 new aircraft into the fleet, starting in October 2005 with expected completion by March 2006

• Mesaba will continue to negotiate a new contract with its mechanics and dispatchers while simultaneously building contingency plans to ensure safe, reliable operations during potential labor unrest at Northwest or Mesaba

Big Sky

• Big Sky will complete its fleet transition, retiring the remaining Metros from operations, and expand its route structure by bringing five additional Beechcraft 1900Ds into the fleet

• Invest in a new fleet at Mesaba which should improve the Company’s financial position and operating results in fiscal 2007 and beyond

• Explore additional growth opportunities with existing subsidiaries and consider acquisitions to diversify in the airline industry.

Fiscal Year Ended March 31, 2005 Compared with Fiscal Year Ended March 31, 2004

Earnings Summary

The Company reported net income of $7.4 million or $0.35 per diluted share for fiscal 2005, compared to $4.5 million or $0.22 per diluted share in fiscal 2004. Diluted weighted average common and potentially dilutive common shares were 21.1 million and 20.6 million in fiscal 2005 and 2004.

Mesaba

Mesaba Operating Revenues

Total operating revenues increased 1.9% in fiscal 2005 to $441.0 million from $432.6 million in fiscal 2004. The increase is primarily attributable to incremental ground handling revenue due to Mesaba’s increased ground handling business in Minneapolis and Detroit. This was partially offset by a 0.4% decrease in passenger revenue as the reduction in Saab flying more than offset the incremental RJ85 flying year-over-year.

Mesaba Operating Expenses

Total operating expenses in fiscal 2005 increased 1.0% to $426.5 million from $422.2 million in fiscal 2004. The cost per ASM decreased 4.1% to $0.139 from $0.145. The following table compares components of operating cost per ASM for the years ended March 31:

	2005		2004
Wages and benefits	4.6	¢	4.6	¢
Aircraft fuel	0.6		0.7
Aircraft maintenance	2.7		2.7
Aircraft rents	3.3		3.5
Landing fees	0.2		0.2
Insurance and taxes	0.2		0.3
Depreciation and amortization	0.5		0.6
Administrative and other	1.8		1.9
Total	13.9	¢	14.5	¢

Wages and benefits increased 5.6% to $140.9 million in fiscal 2005 from $133.5 million in fiscal 2004. Wages and benefits increased due to increased ground handling wages from additional ground handling activity, increased wages due to additional flying and the new pilots’ contract and increased costs related to the 401(k) benefit plan. These increases were slightly offset by lower health and dental expenses resulting from improved experience. Year-over-year comparisons were also affected by the one-time $2.7 million retroactive pilot compensation expense in the prior year resulting from the pilots’ contract signed in January 2004.

Aircraft fuel decreased 16.0% to $16.9 million in fiscal 2005 from $20.1 million in fiscal 2004. The decrease is partially attributable to a decrease of 6.5% in Saab block hours flown. In addition, there was a $1.8 million decrease due to adjustments made to previously recorded accruals for estimated fuel expense. Certain provisions of the Airlink Agreement with Northwest protect Mesaba from changes in fuel prices. Mesaba’s actual cost of fuel, including taxes and pumping fees, was 83.5 cents per gallon in both fiscal 2005 and 2004. Northwest is responsible for fuel for Mesaba’s RJ85 operations.

Aircraft maintenance costs, excluding wages and benefits, increased 5.8% to $81.9 million in fiscal 2005 from $77.4 million in fiscal 2004. Aircraft maintenance costs increased primarily due to a 9.5% increase in RJ85 block hours in fiscal 2005 and repair costs incurred to continue to maintain the fleet as it ages.

Aircraft rents decreased 2.2% to $100.5 million in fiscal 2005 from $102.7 million in fiscal 2004. This decrease is attributable to four fewer Saab aircraft in service year-over-year.

Landing fees decreased 3.9% to $6.5 million in fiscal 2005 from $6.8 million in fiscal 2004. The decrease is primarily attributable to the 7.1% reduction of Saab departures partially offset by airport rate increases during fiscal 2005. Northwest is responsible for landing fees for Mesaba’s RJ85 operations.

Insurance and taxes decreased 26.4% to $6.2 million in fiscal 2005 from $8.4 million in fiscal 2004. The decrease is primarily attributable to fewer insured aircraft and a reduction in the rates charged for hull and passenger liability insurance, as well as the recognition of property tax refunds of $0.7 million.

Depreciation and amortization decreased 15.1% to $13.8 million in fiscal 2005 compared to $16.3 million in fiscal 2004. The lower level of depreciation and amortization resulted from reduced capital spending over the last several years.

Administrative and other expenses increased 5.0% to $59.9 million in fiscal 2005 from $57.0 million in fiscal 2004 primarily due to increased outside services of $3.6 million related to consulting and audit costs incurred to comply with the requirements of the Sarbanes-Oxley Act and increased TSA fees. In addition, the increase was due to costs associated with irregular operations of approximately $1.2 million. These increased costs were offset by reduced costs related to third party Saab ground handling of $1.1 million and pilot training of $1.4 million.

Big Sky

Big Sky Operating Revenues

Total operating revenues decreased 8.5% to $15.1 million in fiscal 2005 from $16.5 million in fiscal 2004 due to a reduction in flying unprofitable routes, resulting in a $1.7 million decrease in passenger revenue, partially offset by a $0.3 million increase in EAS subsidies.

Big Sky Operating Expenses

Total operating expenses in fiscal 2005 decreased 0.5% to $20.0 million from $20.1 million in fiscal 2004 primarily due to the reduced flying year-over-year, which were offset by $1.0 million costs associated with the permanent grounding of four Metro aircraft: three due to the fleet transition from Metros to Beechcraft 1900Ds and one due to significant aircraft damage.

Consolidated Operating Income

Operating income totaled $8.6 million in fiscal 2005, as compared to $4.0 million in fiscal 2004. The Company’s operating margin increased to 1.9% in fiscal 2005 from 0.9% in fiscal 2004.

Consolidated Nonoperating Income

Nonoperating income (net) decreased to $2.3 million for fiscal 2005 from $4.4 million in fiscal 2004. The decrease is primarily due to the government grant of $2.6 million in fiscal 2004, which was partially offset by increased interest income of $0.6 million earned on the Company’s investments in fiscal 2005.

Consolidated Provision for Income Taxes

The provision for income taxes decreased 9.1% to $3.6 million in fiscal 2005 from $4.0 million in fiscal 2004. The Company’s blended effective tax rate was 32.9% in fiscal 2005 as compared to 46.8% in fiscal 2004. During the first quarter of fiscal 2005, the Company received verification of a final settlement with the Internal Revenue Service concerning its examination of the Company’s fiscal 1995 and 1996 income tax returns. As a result of this settlement, the Company reduced its income tax payable and tax provision by $1.2 million. Without this one-time adjustment, the Company’s effective tax rate would have been 43.8% in fiscal 2005. The Company adjusts its effective tax rate quarterly based on forecasted operating results in the fiscal year. The rate is affected principally by the level of nondeductible expenses relative to projected taxable income.

Fiscal Year Ended March 31, 2004 Compared with Fiscal Year Ended March 31, 2003

Earnings Summary

The Company reported net income of $4.5 million or $0.22 per diluted share for fiscal 2004, compared to $4.2 million or $0.20 per diluted share in fiscal 2003. Diluted weighted average common and potentially dilutive common shares outstanding were 20.6 million and 20.4 million in fiscal 2004 and 2003.

On December 1, 2002, the Company acquired all the outstanding shares of Big Sky and accounted for the transaction using the purchase method of accounting. The Company has consolidated Big Sky’s results of operations from the acquisition date to March 31, 2004. For fiscal 2004, Big Sky generated operating revenues of $16.5 million and operating expenses of $20.1 million. Due to the fact that year-over-year and full year information for Big Sky is not included, a detailed discussion of Big Sky’s operating results and statistics is not presented.

Mesaba Operating Revenues

Total operating revenues decreased 4.1% in fiscal 2004 to $432.6 million from $451.1 million in fiscal 2003. The decrease is attributable to a decrease of approximately 6.7% in completed Saab ASMs due to the return of six Saab A-model aircraft, the grounding of five RJ85 aircraft from December 2003 to March 2004 and the temporary shutdown of service during final pilot negotiations in January 2004 that resulted in the cancellation of 624 flights.

Mesaba Operating Expenses

Total operating expenses in fiscal 2004 decreased 3.6% to $422.5 million from $438.4 million in fiscal 2003. The cost per ASM decreased 6.9% to $0.145 from $0.155.

The following table compares components of operating cost per ASM for the years ended March 31:

	2004		2003
Wages and benefits	4.6	¢	4.6	¢
Aircraft fuel	0.7		0.8
Aircraft maintenance	2.7		2.9
Aircraft rents	3.5		3.8
Landing fees	0.2		0.2
Insurance and taxes	0.3		0.5
Depreciation and amortization	0.6		0.7
Administrative and other	1.9		2.0
Total	14.5	¢	15.5	¢

Wages and benefits increased 1.7% to $133.5 million in fiscal 2004 from $131.3 million in fiscal 2003. The increase is primarily the result of the new ALPA contract, which included $2.7 million in retroactive pay, which was partially offset by productivity improvement in maintenance and customer service. Also contributing to the variance were significant increases in health and dental insurance and workers’ compensation costs.

Aircraft fuel decreased 8.2% to $20.1 million in fiscal 2004 from $21.9 million in fiscal 2003. The decrease is attributable primarily to a decrease of 6.6% in the number of Saab block hours flown, favorable fuel burn rates and fuel credits received in fiscal 2004. Certain provisions of the Airlink Agreement with Northwest protect Mesaba from changes in fuel prices. Mesaba’s actual cost of fuel, including taxes and pumping fees, was 83.5 cents per gallon in both fiscal 2004 and 2003. Northwest is responsible for fuel for Mesaba’s RJ85 operations.

Aircraft maintenance costs, excluding wages and benefits, decreased 5.5% to $77.4 million in fiscal 2004 from $81.9 million in fiscal 2003. Aircraft maintenance costs decreased primarily due to a 2.3% reduction in flight hours flown in fiscal 2004 and a reduction in aircraft damage expenses.

Aircraft rents decreased 3.7% to $103.0 million in fiscal 2004 from $107.0 million in fiscal 2003. This decrease is attributable to fewer aircraft in service year-over-year.

Landing fees decreased 5.3% to $6.8 million in fiscal 2004 from $7.2 million in fiscal 2003. The decrease is primarily attributable to the reduction of Saab departures during fiscal 2004. Northwest is responsible for landing fees for Mesaba’s RJ85 operations.

Insurance and taxes decreased 43.2% to $8.4 million in fiscal 2004 from $14.7 million in fiscal 2003. The decrease is primarily attributable to a reduction in the rates charged for hull and passenger liability insurance and favorable property tax credits.

Depreciation and amortization decreased 12.2% to $16.3 million in fiscal 2004 compared to $18.6 million in fiscal 2003. The lower level of depreciation and amortization resulted from reduced capital spending over the last several years. The reduction is because less capital expenditure is required to maintain the fleet versus investing in the infrastructure to grow the fleet in previous fiscal years.

Administrative and other expenses remained relatively constant, increasing 2.2% to $57.0 million in fiscal 2004 from $55.8 million in fiscal 2003.

Consolidated Operating Income

Operating income totaled $4.0 million in fiscal 2004, as compared to $8.3 million in fiscal 2003. The Company’s operating margin decreased to 0.9% in fiscal 2004 from 1.8% in fiscal 2003.

Consolidated Nonoperating Income

Nonoperating income (net) increased to $4.4 million for fiscal 2004 from $0.3 million in fiscal 2003. Fiscal 2004 nonoperating income represents a government grant of $2.6 million and interest income earned on the Company’s investments. Fiscal 2003 nonoperating income represents the offsetting impact of the recognition of a $3.0 million writedown of an investment in a WorldCom bond and interest income earned on the Company’s remaining investments.

Consolidated Provision for Income Taxes

The provision for income taxes decreased 10.7% to $4.0 million in fiscal 2004 from $4.4 million in fiscal 2003. The Company’s blended effective tax rate was 46.8% in fiscal 2004 as compared to 51.7% in fiscal 2003. The effective tax rate decreased primarily due to deducting certain meals and entertainment expenses that were previously treated as nondeductible expenses.

Liquidity and Capital Resources

Cash, cash equivalents and short and long-term investments increased 6.9% to $170.9 million at March 31, 2005 from $159.9 million at March 31, 2004. The Company’s working capital increased to $105.3 million with a current ratio of 2.3 at March 31, 2005 compared to $97.8 million and 2.3 at March 31, 2004.

Investments consist principally of municipal securities and are classified as available-for-sale. Available-for-sale investments are reported at fair value with unrealized gains and losses excluded from operations and reported as a separate component of shareholders’ equity, except for other-than-temporary impairments, which are reported as a charge to current operations and result in a new cost basis for the investment. The Company classifies investments with an original maturity of more than 90 days that mature within one year as short-term and greater than one year as long-term.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

PART I
Item 1. BUSINESS
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
Item 9B. OTHER INFORMATION

PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES

EXHIBIT INDEX