UPDATE 1-Delta, bankrupt Mesa Air settle claims

Wed Jan 5, 2011 12:56pm EST

* Delta retains $7.3 mln claims, had filed for $67.8 mln

* Mesa Air filed for Chapter 11 in January 2010

* Court approval required

* Delta shares up 4.3 pct (Adds Delta statement, updates share prices)

By Jonathan Stempel

NEW YORK, Jan 5 (Reuters) - Delta Air Lines Inc (DAL.N) has agreed to waive most of its claims against Mesa Air Group Inc MESAQ.PK to resolve litigation with the regional carrier, which is reorganizing in bankruptcy court.

In a Tuesday court filing, Mesa said Delta will retain about $7.3 million of general unsecured claims and waive other claims. The waiver includes claims that Delta said it had prior to Mesa's Chapter 11 filing one year ago, the filing said.

Delta had filed claims for at least $67.8 million against Mesa and its Freedom Airlines unit.

The disputes stemmed in part from Delta's 2008 effort to end Freedom's status as a Delta Connection carrier, because of Freedom's failure to complete enough flights.

"Delta has resolved all claims with Mesa and is pleased these disputes have come to a close," Kristin Baur, a spokeswoman for Delta, said in an email.

A federal court in Atlanta, where Delta is based, ruled last May that Delta had a right to terminate the connection agreement, and awarded it $2.94 million. Mesa did not appeal. [ID:nN24254786]

The proposed settlement requires approval by U.S. Bankruptcy Judge Martin Glenn, who oversees Mesa's restructuring in Manhattan.

Mesa filed for bankruptcy protection on Jan. 5, 2010, hoping to use the restructuring process to reduce its fleet and make it easier to settle with Delta.

The Phoenix-based carrier has also provided regional service for US Airways Group Inc. LCC.N

A hearing to confirm Mesa's Chapter 11 reorganization plan is set for Jan. 14, and a hearing on the Delta settlement is set for Jan. 26, court records show.

Mesa shares were down a fraction of a cent at 1.4 cents in afternoon trading on the Pink Sheets. Delta shares were up 4.3 percent at $13.07 on the New York Stock Exchange.

The case is In re: Mesa Air Group Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-10018. (Editing by Steve Orlofsky and Matthew Lewis)