What version of iPhot do you ave hat is gving you this message?
You say
am trying to upgrade the iPhoto library to transfer it to my new MacBook Air.
Instead move the libray to the MBA and upgrade it there using the version of iPhotot that is there - you can not upgrade it on the old system with the old version of iPhoto
And the library upgrader does not upgrade the library - it modifies version 7 and earlier libraries so that the new version of iPhoto can upgrade them successfully
Moving the iPhoto library is safe and simple - quit iPhoto and drag the iPhoto library intact as a single entity to the external drive - depress the option key and launch iPhoto using the "select library" option to point to the new location on the external drive - fully test it and then trash the old library on the internal drive (test one more time prior to emptying the trash)
And be sure that the External drive is formatted Mac OS extended (journaled) (iPhoto does not work with drives with other formats) and that it is always available prior to launching iPhoto
And backup soon and often - having your iPhoto library on an external drive is not a backup and if you are using Time Machine you need to check and be sure that TM is backing up your external drive
LN