LETTER OF CREDIT REIMBURSEMENT AGREEMENT

TABLE OF CONTENTS

(Not a part of this Reimbursement Agreement)

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THIS LETTER OF CREDIT REIMBURSEMENT AGREEMENT , dated as of April 17, 2006, is by and between MAIR HOLDINGS, INC. , a Minnesota corporation (the “Corporation”), and FIRST INTERSTATE BANK , a Montana banking corporation (the “Bank”).

WITNESSETH:

WHEREAS , pursuant to a Guaranty Agreement dated July 1, 1999, the Corporation guaranteed the obligations of its subsidiary, Mesaba Aviation, Inc. (“Mesaba”), with respect to those certain Kenton County Airport Special Facilities Revenue Bonds, 1999 Series A, in the original amount of $14,000,000 (the “Bonds”); and

WHEREAS, Mesaba filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on October 13, 2005, an event of default under the ground lease associated with the issuance of the Bonds; and

WHEREAS, the Trustee for the bondholders, UMB Bank, N.A. (the “Trustee”), declared all sums due under the Bonds immediately due and payable, but agreed to forbear acceleration and payment on the Bonds on the condition that the Corporation deliver a letter of credit for the benefit of the Trustee; and

WHEREAS, to enhance the security for the payment obligations evidenced by the Bonds, the Corporation has requested that the Bank issue an irrevocable letter of credit in the form of Exhibit A hereto (together with all replacements thereof and substitutions therefor, the “Letter of Credit”), for the account of the Corporation in favor of the Trustee, in the amount of $13,110,000.00 (the “Letter of Credit Commitment”);

NOW, THEREFORE, in consideration of the above and in order to induce the Bank to issue the Letter of Credit, the Corporation and the Bank hereby agree as follows:

ARTICLE I

LETTER OF CREDIT FACILITY AND REIMBURSEMENT

1.01  Issuance of Letter of Credit . The Bank agrees, on the terms and conditions hereinafter set forth, to issue the Letter of Credit to the Trustee. The Letter of Credit shall expire by its terms on April 17, 2006, but the term shall be automatically renewable for additional one year periods unless the Bank notifies the Trustee at least sixty (60) days prior to the then current expiration date that the Bank has elected not to renew the Letter of Credit. The date on which the Trustee has made the final draw under the Letter of Credit (provided that such drawing is fully honored up to the maximum amount available) is referred to as the “Termination Date” of the Letter of Credit. The Corporation may make written request that Bank not renew the Letter of Credit at least sixty (60) days prior to the then current expiration date and Bank shall thereupon give notice of non-renewal to the Trustee pursuant to this Article 1.01 and the Letter of Credit.

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1.02  Reimbursement . The Corporation hereby agrees to pay to the Bank (a)  on demand, or in the absence of demand within one (1) business day (being any day other than a Saturday, Sunday or public holiday or the equivalent under the laws of the State of Montana) from the date of a draw under the Letter of Credit, a sum equal to any amounts drawn under the Letter of Credit, together with interest thereon from the date of a draw to the date of payment at a variable per annum interest rate (computed on the basis of a year of 365 days) equal to the Prime Rate (defined below) PLUS one percent (1%) per annum; and (b)  on demand, any and all reasonable charges and expenses that the Bank may pay or incur relative to the Letter of Credit and any and all reasonable expenses incurred by the Bank in enforcing any rights under this Agreement. “Prime Rate” shall mean at any time the annual prime rate of interest as published in “Money Rates” of the Money and Investing Section of The Wall Street Journal, Western Edition (which is the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks), adjusted as prime rate changes are announced, with the understanding that the such Prime Rate is a base rate and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and as evidenced by the publication thereof in The Wall Street Journal after its announcement in such internal publication or publications as said largest banks may designate; provided, however, that Prime Rate shall mean the equivalent or substitute Prime Rate published in The Wall Street Journal if for any reason there is a change in the basis upon which the Prime Rate is determined or if such Prime Rate is published in a different section of such publication.

1.03  Letter of Credit Extension Fees . The Corporation hereby agrees to pay to the Bank with respect to the Letter of Credit, an annual extension fee computed at the rate of one percent (1.00%) of the maximum Stated Amount (as automatically reduced from time to time pursuant to Exhibit A to the Letter of Credit) at the time such fee is calculated, which shall be on each Reduction Date (as set forth in said Exhibit A). Said extension fee shall be payable annually in advance. The initial annual extension fee shall be payable on the date of issuance of the Letter of Credit (“Date of Issuance”), and so long as the Letter of Credit remains issued and outstanding, the annual extension fee shall be payable thereafter on each annual anniversary of the Date of Issuance until the Termination Date.

1.04  Security Agreement and Other Security Documents . The obligations of the Corporation under this Agreement, including without limitation the Corporation’s obligation to make payments of principal, interest, letter of credit commitment fees and other costs and expenses under this Article I, are to be secured by, among other things, the following, all in form and substance satisfactory to the Bank:

(a)  an Assignment of Deposit Account, in the form of Exhibit B attached hereto (together with all substitutions, replacements, amendments and modifications thereof, the “Pledge Agreement”), to be executed and delivered by the Corporation for the benefit of the Bank on the Date of Issuance, covering cash deposits maintained at Bank in an amount which at all times is at least one hundred percent (100%) of the maximum amount available to be drawn under the Letter of Credit (the “Deposits” or the “Collateral”).

(b)  any and all other documents, security agreements, financing statements or other instruments which the Bank may determine, in its reasonable discretion, are necessary to secure or

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preserve its lien or security interest in the Collateral, or any other real or personal property hereafter pledged as collateral for the Corporation’s obligations hereunder.

The Pledge Agreement and other documents executed by the Corporation or any other party to secure or guarantee the Corporation’s obligations hereunder are sometimes referred to herein as the “Security Documents.”

1.05  Changes in Law; Costs . If any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall either (a)  impose, modify or deem applicable any reserve, special deposit or similar requirement against letters of credit issued by the Bank or (b)  impose on the Bank any other condition regarding this Agreement or the Letter of Credit, and the result of any event referred to in clause (a) or (b) above shall be to increase the cost to the Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be the result of the Bank’s reasonable allocation of the aggregate of such cost increases resulting from such events), then, (i) within thirty (30) days of the Bank’s obtaining knowledge of such change in law, regulation or interpretation thereof, the Bank shall so notify the Corporation and (ii) upon receipt of such notice from the Bank, the Corporation shall immediately pay to the Bank all additional amounts that are necessary to compensate the Bank for such increased cost incurred by the Bank as a result of any event mentioned in clause (a) or (b) above, and such amount submitted by the Bank to the Corporation shall be conclusive (absent manifest error) as to the amount thereof; provided, however, that nothing herein shall preclude the Corporation from objecting to the amount of any such increased cost by appropriate proceedings if the Corporation has first paid to the Bank the full amount thereof as calculated and submitted by the Bank.

1.06  Expenses . The Corporation hereby agrees to pay the Bank, on demand, any and all expenses, including reasonable attorney’s fees and legal expenses, incurred or paid by the Bank in connection with (a)  the preparation and negotiation of this Agreement and the instruments referred to herein, (b)  the closing of the transactions contemplated hereby, (c)  protecting or collecting the Corporation indebtedness to the Bank under this Agreement, (d)  foreclosing against or otherwise enforcing any collateral security therefor, (e)  protecting, exercising or enforcing any or all of the Bank’s rights and remedies against the Corporation, including (without limitation) all reasonable fees and disbursements of counsel for the Bank in any reorganization, insolvency, or similar bankruptcy proceeding affecting the Corporation.

1.07  Place and Manner of Payment . All payments to the Bank by the Corporation hereunder shall be made in lawful currency of the United States and in immediately available funds to the account of the Bank at P.O. Box 30918, Billings, Montana 59116-0918, Attention:  Commercial Loan Department.

ARTICLE II

CONDITIONS PRECEDENT TO ISSUANCE OF LETTER OF CREDIT

As conditions precedent to the issuance of the Letter of Credit:

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2.01  Receipt of Documents . The Bank shall have received, on or before the Date of Issuance, the following, in form and substance satisfactory to the Bank:

(a)  a favorable opinion of counsel to the Corporation, in substantially the form of Exhibit C hereto, and as to such other matters as the Bank may reasonably request;

(b)  the executed Pledge Agreement along with appropriate, executed financing statements, assignments, and other documents required thereunder;

(c)  an executed copy (or a duplicate thereof) of the Articles of Incorporation and Bylaws of the Corporation;

(d)  an executed copy of the Resolutions of the Corporation authorizing the transactions contemplated under and this Agreement; and

(e)  such other documents, instruments, approvals (and, if requested by the Bank, certified duplicates of executed copies thereof) and opinions as the Bank may reasonably request.

ARTICLE III

NATURE OF CORPORATION’S OBLIGATIONS

3.01  Obligation Unconditional . The obligations of the Corporation under this Agreement shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement (except as the Corporation’s obligations may be modified by an action described in subparagraph (f) below), under all circumstances whatsoever, including without limitation the following circumstances:

(a)  any lack of validity or enforceability of the Letter of Credit, or any other agreement or instrument relating hereto or thereto (collectively the “Related Documents”);

(b)  any amendment or waiver of, or any consent to departure from, the terms of all or any of the Related Documents;

(c)  the existence of any claim, set-off, defense or other rights which the Corporation may have at any time against the Trustee or any beneficiary of the Letter of Credit (or any persons or entities for whom any such beneficiary may be acting), the Bank or any other person or entity, whether in connection with this Agreement, the Related Documents or any unrelated transaction (but nothing in this subsection (c) shall constitute a waiver by the Corporation of any claim it may have against the Bank);

(d)  any statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect whatsoever (unless acceptance of or reliance upon any such statement or document shall constitute gross negligence by the Bank);

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(e)  payment by the Bank under the Letter of Credit against presentation of a sight draft or certificate that does not comply with the terms of the Letter of Credit, provided that such payment shall not have constituted gross negligence of the Bank; or

(f)  any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by the Bank, with or without notice or approval by the Corporation, in respect of this Agreement.

3.02  No Other Obligations for Bank . Except as specifically set forth herein or in the Letter of Credit, the Bank shall not be obligated to issue any further credits, to cure any defaults under the Bonds, or otherwise or in any other manner to extend any other financial accommodations to the Corporation.

3.03  Laws Governing Letter of Credit . The Letter of Credit shall be governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No.&