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Statement to the Metropolitan Airports Commission

We doubt the proposed agreement will be beneficial to Minnesota. In his Memo, Counsel Anderson says the need for new terms and conditions was "caused by Delta's acquisition of Northwest "and the potential breach of "covenants." Nonsense! Delta wants to keep the money and decrease its obligations. Like Northwest before, it has a willing partner in the Commission, so prior representations and the State's original plan for MSP expansion will be ignored.

Several times since the loan was made, MAC agreed to changes in the contract and also made keeping the loan covenants part of other arrangements with Northwest. It is an open question if these agreements were made in good faith by Northwest. Is the loan safe in case of another bankruptcy?

The proposal is another step back from keeping comparable jobs in Minnesota. The term sheet provides $8 million annually in revenue sharing for only $500,000 more in loan payback. Parking fees, in particular, tax local travelers already paying high fares because of the near-monopoly and seat-availability manipulation. Metro economic growth would be better served by subsidizing parking at MSP instead of sharing surplus revenue with Delta. They will take the money, sure, but keep local fares high anyway.

Delta says it plans to provide "good Minnesota jobs," but fewer than Northwest provides now. The jobs can be outsourced or non-union and still be considered "Minnesota jobs" per the proposed agreement. There is no upside for Minnesota in fewer flights and fewer airlines.

The proposal gives more discretionary revenue to Delta, which you think is guaranteed by a Delta hub here. You judge that the MAC could possibly lose airport revenue if Delta pays off the loan and reduces its MSP operations. The alternative, making room for more (lower-fare) airlines, was not even considered much less compared in various economic scenarios.

The service levels Delta promises "unless business condition change" is less than Delta/Northwest do today, but still would be proportionally more per MSP-based employee. Off-peak operations could be dropped at Delta's option, making the hub-peaks less safe without making useful gates and slots available to competing airlines. Delta's staffing of gate and air operations is not included in the agreements, and can be reduced without rate reductions. Is a crash or an accident on the ground a change in business conditions? 

Simple repayment in breach or escape by force majeure remains. There is no protection if Delta is unprofitable or defaults again, only the precedent that MAC will re-negotiate again and again and again. Neither is there a clause requiring higher fees if Delta is more profitable. Collateral hasn't been checked as to the present value of the airliners. Who is watching out for our side?

Delta/Northwest uses seat-blocking and dynamic pricing, computer market-models and control of seat supply to maximize revenue. The Bush Justice Department approved the Delta-Northwest merger with these words: the merger "will allow (Delta) to better compete with low-cost airlines." (Emphasis added.) It is hard to imagine how this squares with the public‚s interest in anti-trust and anti-price-fixing enforcement.

The Commission should be talking about how much commerce and how many jobs would be gained if MSP were safer and fares were more competitive compared to non-hub cities. We don't think it is a good idea to continue with a single airline controlling so many gates or operating MSP as an over-large hub with 155 flights at peak hours criss-crossing over our homes. There must be a better way.

South Metro Airport Action Council
James R. Spensley, President

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SMAAC Forum to Hear Public Concerns about MSP

State legislators will hear public concerns about future airline service, operational safety, jobs and economic development at Minneapolis-St. Paul International Airport (MSP) after the Delta/Northwest Airlines merger. The occasion is the annual Fall Forum sponsored by the South Metro Airport Action Council (SMAAC), set for 7 p.m. Tuesday, Dec. 2.

A round table discussion will be held at Windom Community Center, 5833 Wentworth Ave. S., Minneapolis with legislators representing districts adjacent to MSP or serving on labor, economic development and transportation committees. The Forum will continue and extend matters raised in legislative hearings about Delta‚s assumption of Northwest Airlines covenants regarding business activities in Minnesota, Northwest agreed to keep certain flight operations, businesses and jobs in Minnesota in return for State financing and contract concessions by the Metropolitan Airports Commission. 

SMAAC has questioned if MSP expansion matched expectations for competitive air service, economic growth, safety, and environmental management. Airport expansion has morphed into expansion of Northwest‚s Œfortress hub‚ with fewer competing airlines, much high fares compared to non-hub cities, more noise and pollution, and peak-hour congestion at a small airfield. SMAAC testified at the November 13 legislative hearing.

Delta Airlines recently announced it would locate the Corporate Headquarters of the combined airlines in Atlanta, but wanted to re-negotiate terms and conditions of loan, lease, and airport revenue-sharing agreements at MSP. Public questions involve continued high fares or even increases, service reductions, job cuts, ground and air traffic safety reductions. Northwest unions are concerned because MSP operations might be severely cut back or wage, benefits, and work rule concessions imposed. 

"The aftermath of the merger will likely limit State economic development, considering the limited options," according to SMAAC President Jim Spensley. "Delta is either going to move business activities and reduce local flight service or they are going to outsource high tech maintenance jobs, coerce union wage and benefit reductions, raise fares, and seek more government support with less regulation. Neither alternative is attractive, but MAC and the Legislature need to tread carefully."

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Minnesota House of Representatives Local Government and Metropolitan Affairs Committee

If MAC proposes to re-negotiate the $250 million loan repayment terms rather than enforce the condition -- If Delta moves the Headquarters, the loan must be repaid in full right now – the State needs to interpose.

Several legislators were surprised to learn that the agreement with Northwest included a clause making repayment the sole remedy in case of a breach by Northwest. Usually loan contracts have more collateral and more compelling breach clauses favoring the lender, such as actual and consequential damages, specific performance, or other penalties.

Delta/Northwest has much to gain by re-negotiation. Their loan payments are, not coincidentally, refunded monthly through lowered fees and revenue sharing at MSP. MAC will be shuffling revenue and absorbing more debt service costs to essentially forgive the $230 million loan over 4 or 5 years. 

In 2000, MAC postponed collecting lease payment increments for amortization of the capital cost of added gates and other terminal improvements until the new runway became operational. In 2005, there was a further postponement. In 2007, lease rates were lowered and the amortization of the costs of capital projects directly benefitting the incumbent airlines were dropped or funded from concessions, parking, and other airport revenues. 

The public has little to gain from re-negotiating the deal:

  1. Jobs not transferred or cut now still cannot be guaranteed against a future bankruptcy (and the CEO's "pledges" about keeping other jobs in Minnesota were hedges anyway, not to be counted on).

  2. New terms and conditions to keep pilot training facilities or vague hub operations here, negotiated pretty much by the same people? Unless the State steps in, jobs and business activities left here by a modified agreement would seem to be subject to further re-negotiation. The MAC regards these contract renegotiations and concessions as necessary to keep Delta/Northwest here – either because of political pressure or because there is no other plan to maintain air service. Northwest has been playing Minnesota, through MAC, as a sucker since 1996 at least.

  3. Concessions to Delta will either reduce MAC revenue, or reduce airline competition and increase local fares, or both. This is a negative whether the U.S. aviation industry recovers quickly or slowly.
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Statement regarding testimony at the House Local Government and Metropolitan Affairs Committee Hearing on the Delta/NWA merger

The SMAAC Board of Directors today released a statement about testimony at the House Local Government and Metropolitan Affairs Committee Hearing on the Delta/NWA merger (10 AM Thursday November 13, 2008). The Statement reads:

The SMAAC Board of Directors doubts that Delta/Northwest would keep a major hub here if the airline is under financial stress. To avoid financial stress, Delta/Northwest pretty much has to: break the back of the Northwest unions in Minnesota; continue its 95% dominance of gates and seats and 40% higher fares for Minnesotans; unjustly profit from MSP revenue-sharing and fee concessions; and continue to benefit from other government subsidies, protections, and lack of regulation.

SMACC believes that the MAC/Northwest association which has provided MAC with operating revenue -- has not lowered fares, increased airline competition and diversified employers, protected the environment, or respected the rights of MSP neighbors. Further, the operational rate increases, started in 1999 and continued during construction, are less safe than before expansion and might be dangerous under conditions where MAC, FAA, and the airlines are steeply reducing staff levels and staff training. 

MAC or Delta proposes to re-negotiate the $250 million loan repayment terms rather than enforce the condition -- If Delta moves the Headquarters, the loan must be repaid in full right now the State needs to interpose.

BACKGROUND: SMAAC appeared at recent Legislative Hearings outlining the organizations concerns. SMAAC represents neighborhoods near the airport and air travelers and small businesses concerned about high fares, safety at MSP, noise and pollution. See November 13, letter to the Local Government and Metropolitan Affairs Committee.

SMAAC's and other public testimony planned for today's Hearing may not be heard, according to Committee staff.

Several legislators were surprised to learn that the agreement with Northwest included a clause making repayment the sole remedy in case of a breach by Northwest. Usually loan contracts have more collateral and more compelling breach clauses favoring the lender, such as actual and consequential damages, specific performance, or other penalties.

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SMAAC to stage 40th anniversary Party Aug. 20

The South Metro Airport Action Council (SMAAC) will hold a 40th Anniversary Celebration from 5:30-8:30 p.m. Wednesday, Aug. 20 at Veterans Memorial Park, E. 64th St. and Portland Ave. S, Richfield.

The picnic marks three milestones in the citizen watchdog group's evolution:
The first induction of SMAAC volunteers and public officials into a new SMAAC Hall of Fame.

Winning the 2007 consent decree requiring the Metropolitan Airports Commission (MAC) to spend an additional $127 million for noise mitigation helping 5,286 residential units around the airport. MAC had not lost a citizen lawsuit in its 65-year history.

The unveiling of an expanded mission statement for the next decade: to monitor aviation safety, pollution and related economic development activities in the metro area.

The new Hall of Fame honors persons who led in the public's objections to jet noise over neighborhoods adjacent to Minneapolis-St. Paul International Airport (MSP). The first class covers the years between 1968-1986.

The court-ordered mitigation settlement, while welcome, falls far short of the 1996 commitment by MAC to install the same noise-reduction package as it did for homes closer to the airport from 1992-2005. The $147 million settlement was less than the $350 million estimated for the work when promised in the 1990's as part of MSP expansion.

SMAAC is also vigorously questioning air and ground safety co-ordination at MSP, beginning with an incomplete investigation of the very serious airliner collision in May 2005. Responsibilities for safety are divided among the MAC, the FAA, and the airlines.

Environmental regulation and enforcement at MSP and its six reliever airports is unusual and legally exempt from local government reviews.

The $3 billion expansion program finished in 2005 with the opening of the new north-south runway has failed to attract low-cost airlines or to relieve the high fares charged to local travelers as sought by the 1996 state legislature. This is partly due to untoward agreements with Northwest Airlines, whose hub operations at MSP have been supported with loans, operating policies, fee concessions, and capital improvements.

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Local Watchdog Group: FAA Budget Stalemate Threatens MSP

The South Metro Airport Action Council (SMAAC) today released a letter sent to the entire Minnesota Congressional delegation advising the utmost caution regarding the Federal Aviation Administration (FAA) reauthorization. The Washington Post stated recently that the FAA re-authorization "...became a legislative lint roller of non-aviation-related measures.” The reauthorization bill stalled when a cloture vote failed last month. A continuing resolution expires June 30.

Congressman Jim Oberstar told SMAAC “The House of Representatives soundly rejected the Administration’s proposed FAA reauthorization legislation, including its user fee proposal to fund the air traffic control system. H.R. 2881, the FAA Reauthorization Act of 2007, authorizes $68 billion for FAA for fiscal years 2008 through 2011. The bill includes a modest increase in the general aviation jet fuel and aviation gasoline tax. The Senate has developed its own bill in Committee, but had trouble passing it due to fights over extraneous provisions.”

Oberstar hopes the differences can be resolved soon, and that the House and Senate will be able to develop an appropriate bill to send to the President. 

SMAAC notes that five years ago many FAA research and development programs were canceled or cut back, and little has been done since. Even system maintenance and software fixes have been slowed to a trickle for lack of funding. Therefore, a continuing resolution, allowing expenditures under the status quo, gains nothing for busy hubs like Minneapolis-St. Paul International Airport (MSP). 

SMAAC and others doubt the FAA’s grand solution to air traffic control, the Next Generation system (NextGen) is any better because its development and deployment will cost billions and take decades, even if several serious technical issues are resolved. 

As a result of a specific Congressional action, the FAA announced on May 30 that an auction for a limited number of landing slots at Kennedy and Newark Liberty International airports will be conducted. Combined with the cap on the number of flights in and out of the New York metropolitan area during peak hours (also required by the special law), congestion there can be somewhat reduced. These airports already had fewer operations per hour than either O'Hare or MSP. 

While we wait, we need rate reductions and airline competition at MSP, as in New York. Congress apparently must do what makes us safer and more economically competitive in Minnesota, as local officials and entrenched airlines certainly haven’t.

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House Commerce Committee Hearings on the NWA/Delta merger

Remarks by James R. Spensley


The Legislature is to be congratulated for taking up the proposed merger of Northwest Airlines and Delta Airlines. We are here representing ordinary citizens in the deal. 
Both Delta and Northwest operate busy hubs. A hub airline's gate dominance effectively prevents its competitors from serving connecting passengers and the government allows airlines to refuse out-of-town reservations. At issue now is how the newly expanded hub at MSP might be used after this merger.
Without either regulation or commitment, Delta has stated that its hubs will be “consolidated” after the merger, with Memphis and Cincinnati operations steeply decreased. Minnesota needs to be interested in how and when changes will be made here, at MSP

If the MSP hub is “moved” to Detroit or elsewhere, almost certainly there will be a decade or more of financial crisis at MSP. Airline service sufficient for Minnesota economic needs is threatened just by uncertainty as to the “new Delta” plans and schedules. 
No doubt the airports commission testified that MSP costs per enplaned passenger are lower than at many airports, and they anticipate “demand” would attract other airlines to increase operations here. However, because of debt and over-expansion of gates, this ratio is misleading. If MSP enplanements are reduced, capital costs and debt will remain. Over-built MSP terminal facilities will be more available, but less used. Unless debt repayment is extended or airline operations are further subsidized, other airlines would not realize a comparatively better per-passenger cost at MSP. If they come, it will be because local business demand persists and high fuel and other costs remain universal. We still pay the cost.
Instead, big oil profits might completely stifle demand. Obtaining additional airline service with so much debt outstanding from expansion would then be very difficult. MSP revenues would decline precipitously.
Northwest, as the dominant airline at MSP, made various representations to and through the Metropolitan Airports Commission about supporting public-benefit programs to reduce airport noise and control air and water pollution from air operations. But this support is primarily after-the-fact mitigation, subject to withdrawal depending on merger details.

We believe that neighborhoods near MSP would not get noise and pollution relief. The programs’ funds depend on airline landing fees and gate leases as well as passenger fees, and could be lost or indefinitely delayed in a merger. Various representations made by Northwest to secure gate leases and landing rights at MSP are again in doubt, including court-ordered schedules.

We believe the Legislature should not allow MAC to terminate more than a few gate leases without substantial prepayments, and that payments should be at the original rates, which included amortization of capital costs. In the event MAC intended to allow contracts to be terminated in a merger, the State must hold that MAC lacked the authority to make such contracts favoring a Corporation against public interests. The merged airline rightfully should either honor Northwest’s lease terms and tenure or fully compensate MAC and the State of Minnesota. 
Neither ball clubs nor airlines ought to profit from public facilities and leave us taxpayers holding the bag for, in this case, billions of dollars in bond financing!

If the MSP hub is kept pretty much intact, there are also major problems.
By expanding MSP, the State planned to retain airline jobs in Minnesota (not necessarily Northwest jobs), to increase airline competition, to provide lower fares and better service for Minnesota travelers, and to maintain aviation safety and security. It hasn’t happened. Expanding Northwest’s hub is not the same.

The State of Minnesota, through MAC, is culpable. The Dual-track process addressed sustainable growth and economic impacts of aviation objectively, but as implemented, MSP expansion favored a larger hub mainly benefitting Northwest Airlines and financed it based on false assurances by Northwest Airlines' management. MAC in fact built Northwest more gates immediately after 9/11.

If Delta/Northwest schedules, especially hub flights, are maintained, fares and fees will remain very high for Minnesota businesses and travelers. The upshot is that a few less flights per day at a hub do not necessarily reduce peak-hour rates or increase safety. Busy, congested hubs complicate operational safety and security. We can expect steeply increased public costs for safety and security during operational peaks, particularly on a per passenger basis, if the hub is not reduced.

Consider the costs of a crash or a terrorist incident and how either would affect flight demand.

The best, but most unlikely, third alternative is more balanced use of MSP. By a 40% reduction in the hub (not abandonment or continuation), Northwest/Delta can reduce costs significantly by leasing fewer gates, balancing staff, and decreasing flight delays. Peak-hour rates of 100 to 110 operations per hour would be substantially safer, and if 20 or 30 of these slots were used by competing airlines, the hub could operate from as few as 45 or 50 gates (rather than 90). MSP could still have about the same number of daily flights overall. This plan is more likely to result in lower local fares and a shallower dip in airport revenues. There may be no other way to attract competing airlines. Work for it.

More than hand-wringing and deploring our unfortunate economic outlook will be required. Minnesota will suffer more than most States from airline mergers, even if Delta and Northwest are able to continue operating for awhile afterward. The State should actively oppose the merger as anti-competitive and inappropriate for public financing at best, and disastrous at worst. 

A return to fair-pricing rules and better enforcement of existing trade regulations (such as predatory temporary fare reductions) would be better market economics. High fuel costs make the hub-and-spoke system uneconomical because connecting flights add distance and expensive stopovers compared to direct (point-to-point) flights. The advantages in consolidating demand though collector (spoke) flights have mostly faded: the cost per passenger mile is higher than ever, and population growth in many cities has made consolidation unnecessary or less cost-effective for the traveler.

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Citizens‚ Group Urges Public Debate Of More Aid to NWA

The South Metro Airport Action Council (SMAAC) today said that the Metropolitan Airports Commission (MAC) may be acting presumptiously by scheduling a vote next month on plans to reduce airline fees and share airport revenue with incumbent airlines at MSP.

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