Minneapolis was the city most impacted when the south parallel runway (R12L-30R) at MSP was closed for several weeks for
major repairs in 2007. The Metropolitan Airports Commission (MAC) said for years that the “new” runway would not be used
over Minneapolis. But two years ago, the new Runway (17-35) was used for about 300 flights per day over Minneapolis.
There was little or no advance coordination with local governments or the public. The schedule was chosen for the
convenience of the airlines. The City of Minneapolis was unable to limit additional flights over the City, or chose not to
because of economic considerations.
The South Metro Airport Action Council (SMAAC) spoke out strongly that closing a major runway at Minneapolis-St. Paul
International Airport should not result in descents over downtown Minneapolis (homeland security), more frequent use of the
“cross-wind” Runway 4-22 (safety), or take-offs over un-insulated neighborhood schools during classes (violates noise
compatibility agreements). Now, after a year’s delay for the Republican National Convention, airport plans are to close the
north parallel runway for repairs for several weeks starting in mid-August.
It is expected that the new runway will be used frequently over Minneapolis and that many more flights, at lower altitudes, will
be directed over southwest Minneapolis and Richfield. Also, more use will be made of the cross-wind runway (R4-22) in spite
of safety concerns: this runway crosses the other runways and associated taxiways at MSP on the ground. The changes will
be handled under temporary air traffic control procedures and by re-routing most flights.
The MAC did not discuss closing the cross-wind runway because of its proximity, at the runways’ intersection, to the
construction projects. They did say that FAA rules do not require closing this runway unless work is within 60 feet of the
runway edge. So the immediately adjacent part of the north parallel runway will be completed during early morning hours, at
extra cost. SMAAC noted that FAA rules do not prohibit closing the cross-wind runway either, and this runway contributes little
to safe capacity. Our concern is that using this small gain in capacity safely introduces substantial complications to air and
ground traffic management, particularly during periods of high demand or in case of an emergency. Airline pressure to
maintain schedules leads to increased control problems on the ground, SMAAC notes, leading to delays or worse.
“The repair of the main parallel runways at MSP is obviously beneficial to Northwest/Delta, because they, and the other
airlines, need a smooth and clean runway.” according to Jim Spensley, SMAAC President. “These repairs were postponed for
years to keep MSP suited for hub operations until the new runway came online. Frequent cleaning and minor repairs for
safety were done over those years as an airport expense, and again Northwest/Delta again benefitted. Once the new runway
was available, costly maintenance of the main parallel runways was continued for even higher rates. Something is surely
wrong if rates cannot be reduced temporarily during safety-essential and airline-beneficial runway re-construction.”
SMAAC objected to changed flight routes instead of reduced rates in 2007, noting that noise mitigation, emergency response,
zoning (hazards to flights and height restrictions) were all planned for the usual flight paths. SMAAC again complained that
temporary routes, rates, and ground and air traffic control issues were not openly discussed by the MAC for the 2009 project.
It would be better if schedules were adjusted away from the busiest hours so that better, safer plans could be made by FAA
Instead, the MAC referred the temporary operations plans to its Noise Oversight Committee (NOC). Unfortunately, there is
nothing much for NOC to review: details of the temporary runway use and airspace design changes have not been released
by FAA, and may never e released in detail. Using NOC staff assumptions and how the 2007 closure was handled, NOC is
planning a series of announcements and presentations to alert the public to flight routes during the north parallel runway
[NOC’s purpose is to bring airport users and city representatives together to discuss airport noise and submit reports to the
MAC. NOC is co-chaired alternately by an airline and a citizen representative; it is staffed by the MSP noise manager. Are the
cities allowing important concerns -- community coordination, safety, security, and air pollution -- to be decided by NOC?]
MAC staff has run simulations that suggest peaks would be somewhat reduced compared with 2007 if Northwest/ Delta daily
schedules are reduced in August as planned. Delays will be significant for local travelers anyway, and more so if runway-use
changes are made daily due to variable winds and weather conditions. The south parallel runway is longer than the north
parallel runway, so – according to MAC -- more aircraft might use it without crossing another runway, giving MSP a small rate
boost compared to the 2007 project. Requests to depart on the south parallel runway starting beyond the intersection with the
cross-wind runway is a complicated traffic issue, because a safe runway length depends on aircraft gross weight and wind
velocity, aircraft type, and other variables.
How will cities deal with the thorny issues raised in 2007 and as yet unaddressed for the 2009 project? Minneapolis’ NOC
member, Council Member Elizabeth Glidden, has asked the City Transportation and Public Works Committee to invite MAC
for clarifications of operations during the project. The Committee’s July meeting would allow little time for changes, if any, or
for the city to consider complementary changes such as traffic or emergency response.
SMAAC suggested that the Committee should also hear from independent safety and noise experts. However, if 2007 is
repeated, the temporary, complicated operational plan will be sprung on the public just before the project begins, and daily
attempts will be made to maintain rates in spite of reduced safe capacity.
Objections to “Airspace Redesign” as Funded Through September 2009
The $410 Billion Omnibus Appropriations Bill as passed by the Senate includes FAA funding for the fiscal year ending September 2009. FAA gets $300 million for Next Generation Air Traffic Control (ATC) projects; however, any portion of this can go to Airspace Redesign. The announced purpose of airspace re-design in the Northeast Corridor is to “reduce delays” (increase operations per hour at busy airports) and “save fuel” (reduce en route separations and flight durations).
Legitimate concerns about this possibility were raised by many communities expecting more overflights, including in
new areas, without adequate planning, environmental review and consultation. Pilots and air traffic controllers doubt
the feasibility, in practice, of adapting the existing ATC and cockpit systems to more traffic and more complex traffic
This use of the appropriation lacks scientific value for Next Gen, at best duplicating a statement of requirements. it
is unlikely any significant changes will be implemented in six months. Monies spent for successful improvements to
the existing systems would show that expensive Next Gen communications of GPS data are unnecessary.
FAA presented airspace re-design to Congress as a simple route planning exercise. It isn’t. In the Northeast
Corridor, there are numerous ATC centers and radar/transponder locations with coverage and responsibility for
current routes. At airports, Instrument Flight Rule (IFR) systems correspond to established approaches, and in the
New York City/New Jersey area, detailed mapping of tall buildings, towers and bridges. This cannot be done in six
months, and how much of an improvement is needed isn’t set in the Next Gen design.
Questioning Interim Airport Improvement Projects (AIP)
$3.515 billion also goes to Airport Improvements (AIP) funding. This is in addition to the $1.1 billion for AIP grants in the recently passed stimulus package. Congress has insufficient evidence for a positive outcome and must improve oversight of FAA developments and operations for these appropriations.
As the oldest citizens' group monitoring airline noise and safety procedures in Minnesota, SMAAC is deeply
concerned over use of these funds for two principal reasons: 1) the funds could go toward implementing regional
airspace redesigns in violation of due process, environmental and transportation law; 2) AIP funds could also be used
to support further expansion of the major hub airports.
In response to recent allegations of wrongdoing in the media, prior audits and GAO studies, DOT Inspector General
Calvin Scovel established a special team to oversee the $44 billion DOT is slated to receive from the stimulus bills.
With due respect, IG reviews are rare, tardy and ineffective, and the Congress has not specified the purpose, goals,
funding or reporting of FAA development issues by Mr. Scovel’s team. Congress has not yet ordered adequate
reporting for committee oversight functions or required transparent dealings with airports, State transportation
agencies, or local communities.
The sensible approach is to reduce schedules at the busiest hours. Major airlines oppose this approach
because of their large banks, many gates and business-hour dominance at hubs. The government has no business
supporting such practices by reducing safety standards or spending unwisely to increase air traffic rates. Using
current technology, these are the same error. If the Senate intended to protect public safety, rather than the
business prospects of major airlines, the appropriations should have been explicitly tied to today’s limitations and
original design capabilities (rate and separation standards) and realistic ATC improvements, not Next Gen concepts.
Thank you for your consideration of these issues.
James R. Spensley,
President, South Metro Airport Action Council (SMAAC)
Note: SMAAC and similar citizen organizations are urging their Members of Congress to be more thorough
evaluators of air traffic control systems and technologies. FAA has been rudderless since 2007 when its R&D,
staffing, and systems repair and upgrade programs were cut or abandoned in favor of the overly ambitious and
technologically unproven Next Generation systems. Even if Next Gen is not the desperation punt we think it was
when announced, even its proponents do not see deployments for many years after billions have been spent in
design and test.
By Dick Saunders and Jim Spensley
The Metropolitan Airports Commission (MAC) raised enough questions to delay a decision for three weeks, but voted 11-1 at a special meeting Feb. 4 to allow Delta Airlines to vacate Northwest Airlines' Eagan corporate headquarters without major penalty.
However, in the process, MAC may have, in our opinion, put the state into a weakened position as a major transcontinental airline hub for the long term Exactly how MSP will be impacted if the current world recession continues or worsens over the next several years, as a growing number of economists are hinting, is a question.
The changes at issue until last week lay in the 1992 loan agreement that used MAC's top-ranked credit ranking to float $250-million in bonds for Northwest Airlines while NWA was standing at bankruptcy's door .The new agreement extinguishes MAC's right to force repayment of the bonds if NWA had given up for any reason its Eagan offices before the bonds expired in 2022.
As part of its acquisition of NWA in October 2008, Delta agreed to pay off the balance of $183 million projected to be remaining on the loan by 2016, six years ahead of schedule. In exchange, Delta committed to a series of four hub covenants. The most important covenant requires Delta to keep at least 10,000 of its present 11,500 Minnesota jobs in the state and maintain an annual average of 400 flights a day until the loan expires.(A Delta spokeswoman said the airline currently is running 440 flights a day at the Twin Cities hub)
In the Feb. 4 meeting, MAC Vice Chair Bert McKasy of Sunfish Lake, was the sole abstention, contending that a covenant clause not clearly understood by commissioners, the legislature or the public during January reviews, permits a 10 percent "cushion" of 40 flights (to 360 daily flights) before a penalty would be triggered. The penalty would eliminate Delta's share of MAC's annual concession revenues. (That share amounted to $7-8 million last year.)
At its first review meeting Jan. 26, Dan Boivin, representing the mayor of Minneapolis, asserted that the deal "isn't strong enough to keep Delta from coming back to the table to ask for more relief" if its corporate health worsens in a few years. "I fully expect that will happen. We are not strong enough to prevent it."
Paul Rehkamp, a 16-year commissioner from Mankato, noted that "We have in effect given up an (enforceable) contract for a series of operating covenants that remain unclear as to the definition of a breach." He later voted in favor. (The final agreement attempts to resolve those questions.)
The Delta job guarantee is 37% below Northwest's peak of 18,000 employees in 2000, indicating the extent of the "bust" cycle all airlines have faced since then. Likewise, daily flights at 440, are running about 20 percent below the 2005 peak rate. And the Atlanta-based airline, now the world's largest, has announced it plans to reduce worldwide service by a further 3-6 percent in 2009, or 27 flights if the formula is applied to MSP activity.
Even before the latest service cuts, MAC's revenues for January 2009 fell $11 million short of its budget, resulting in a $2.6 million shortfall in net profit for the month. The primary cause was a $9-million shortfall in concession revenues. A MAC executive told Southside Pride that nonetheless "there are no plans to cut MAC staff in 2009."
Delta To Add Some New Jobs
For its part, Delta has agreed to create a "Delta North" management unit on the MSP campus in the office/support building at 34th Ave. S. and I-494 once occupied by Republic Airlines. After renovation, it will house several corporate functions previously located in Eagan, as well as a new regional airline headquarters. Delta also will transfer here its Compass Airlines regional airline headquarters from Chantilly, VA.
Delta also agreed to maintain its phone reservations centers in Chisholm and Minneapolis, its pilot training center and its Mesaba Airlines regional airline headquarters in two other Eagan locations, plus large flight crews and ground crews servicing Northwest/Delta's gates at MSP.for the duration of the loan agreement.
The fate of NWA's flight systems operations center (SOC) on the MSP campus, however, remains unclear. It employs a reported 300 skilled controllers who maintain contact with air crews during NWA flights and ground crews at NWA gates. NWA must keep a separate SOC for the next 12-18 months until its FAA operating license is merged with that of Delta's.
A Delta spokeswoman said "we may not know until the end of the year" how many employees would remain at the Eagan and Delta North offices.NWA had announced plans to reduce headquarters employment by1,000 when the proposed merger was made public. Peak employment was said to be 2,000 in the mid-1990s.
As state legislators and the South Metro Airport Action Council (SMAAC) have pointed out, Delta can reduce its Minnesota employment below 10,000, provided the percentage does not exceed that of jobs cut elsewhere on its system. And they both doubt that the payrolls of any incoming regional airline employees will match those of outgoing corporate managers.
While MAC and Delta officials maintain hope of a general economic recovery beginning about mid-year, others say the depth and breadth of the present recession may force Delta to make service cuts beyond the 3-6 percent target announced in November.
(Under the revised loan agreement, Delta would be prevented from invoking an old force majeure clause as it did after 9/11.
Plus, NWA faces a competitive threat from Southwest Airlines, which begins service to Chicago Midway in March.
Certainly, there is nothing in either airline's recent history to provide encouragement on the jobs scene. Passenger traffic usually lags an upturn by 3-6 months. Last year Delta cut 6,000 employees, Northwest 2,000 to reduce operating expenses. In November, Delta offered buyouts to another 2,000 Delta employees by Feb. 13. That would further reduce the combined company's worldwide employment to 73,000.
But Wall Street isn't impressed with the outlook for the merged entity.Both companies were foced into bankruptcy in 2006-2007 after years of heavy operating losses -- $29 billion in Delta's case since 2000. The stock has dropped rom 20 to about 6, a 65 percent decline since the merger was announced in 2007. Delta management has forecast a return to profitability during the last three quarters of 2009.
Two House Bills Introduced
Rep. Frank Hornstein, DFL-Minneapolis, and Rep. Joe Adkins, DFL-___________, chair of the House ________________have introduced bills to tighten MAC oversight of its airline tenants. Hornstein observed Jan. 22 that the now-stricken force majeure clause "is big enough to drive an airplane through." Adkins seeks stronger oversight practices for the legislature.
For Minnesota-based passengers, Southwest's low-fare service, not the merger, may become the biggest benefit in 2009. Some passengers, long-time critics of NWA's service, may find Delta's even worse, according to some bloggers. Meanwhile, if Delta-Northwest's 80 percent control of both long-distance and regional seat supply continues well below historical demand, MAC could enforce its use-or-lose gate lease policy to invite more low-cost airlines or legacy carriers like United to add competing service.
(Awaiting an upturn in business, Northwest is retaining rights and paying monthly rental fees on three vacant gates at the Lindbergh Terminal. Seven other vacant gates scattered elsewhere around Lindbergh could be made ready for newcomers "within 90 days," a MAC executive said.)
The downside to all of this speculation is that Delta's implicit control of rush-hour takeoff and landing times squeezes new competitors into off-hour operations, and Northwest is already aggressively marketing low fares on a few routes to fight competitors.
3 Long-Term Possibilities
Long term, we foresee three possible scenarios for MSP:
1) a bigger but less safe hub because of higher peak-hour rates once the economy recovers;
2) a prolonged recession, resulting in a 50-60 percent reduction in revenues and a consequent reduction in MAC's debt service capabilities, or,
3) a multi-line hub with more competition, better service and more airport revenue.
The last scenario, while the best one, is also the least likely. The only good news at the moment is that MAC is freer to move in that direction if the present Republican governor and his 13 MAC appointees have the courage to step back from Delta as much as Delta has stepped back from Minnesota. The next gubernatorial election is only 22 months away.
By Jim Spensley and Dick Saunders
Metropolitan Airports Commission (MAC) members, citing numerous ambiguities in their first look, voted Jan. 6 to delay a decision on a revised loan agreement with Delta Airlines for two weeks.
After three hours of intense questioning of General Counsel Thomas Anderson, commissioners voted unanimously to seek staff clarification on a wide variety of issues seen as impacting the future of Minnesota airline jobs.
Commissioners accepted a working draft as a "framework," but sought to tighten contract enforcement provisions, clarify breach definitions, extend job guarantees, and seek future sources of potential job growth from the recently merged Delta and Northwest businesses.
Notably, MAC Chairman Jack Lanners, Vice Chairman Bert McKasy and Executive Director Jeff Hamiel, all of whom favored the sense of the preliminary draft, supported the delay to Jan. 26 to clear up remaining questions.
The unexpected stiffening of commissioner concerns came in the face of a warning from Delta General Counsel Ben Hirst that any modifications to the pending agreement's terms "could jeopardize the entire package." "Both sides have negotiated every word," he said, adding that the new company had made major concessions to maintain existing flight and job levels.
Observers had expected the working draft to have been approved with little discussion, as Delta had pressed for a decision by Dec. 31 in order to advise employees facing job transfers or further layoffs of their job status.
In probably the most significant action, McKasy proposed that Delta's present job commitment of 10,000 Minnesota employees be extended from 2013 to 2016, when the company's $270-million loan from MAC is to be paid in full. Others asked for a clearer definition of job descriptions to be retained at the new "Delta North" subsidiary headquarters on the MSP campus through 2012;
Also sought was assurance that NWA's pilot training center in Eagan could be modified to train for Boeing 787 jets(scheduled to begin service in late 2010-2011) as NWA grounds aging DC-9s and B-747s, and whether the Eagan property could house some Delta pilot training now being conducted elsewhere in the Delta system.
The MAC staff also agreed to research further any requirement to seek specific legislative action on the new pact. Anderson noted that NWA is presently required to only report yearly on its existing job and flight commitments. After the meeting, a MAC legislative liaison said key Senate and House leaders had not objected to language changes under way.
Two SMAAC members recommended that commissioners seek answers to six questions:
1) Will the hub be run at a safer, lower rate during peak-hour periods as a result of ongoing flight reductions?
2) Are there adequate time slots in the day's schedule to accommodate forthcoming service from Southwest Airlines and any other low-cost airlines?
3) Will Delta seek to retain options on unused gates (and a competitive head-start) when the economy recovers?
4) What, if any, is the upside for the Minnesota economy if there are both fewer flights and less airline competition?
5) What, in the interim, will be the comparative indirect benefits to the state between the old and new loan agreements (e. g. taxable revenues of airline suppliers, increased commerce and lower (or higher) air fares?
6) What negative impacts face MSP if Delta is forced to take further corrective actions toreduce expenses if the deepening world economic crisis continues for an extended period?
SMAAC believes the sole remedy available to the public for a breach of theloan contract was inadequate protection -- paying off the loan balance over 18 months. Several times since the 1992 loan was made, MAC agreed to changes and made keeping loan covenants part of other arrangements with Northwest, such as lease and landing fee reductions and concessions revenue sharing.
Overall, SMAAC believes any new loan agreement, even after Delta's concession to establish a subsidiary headquarters at MSP, will fail to obtain benefits comparable to the loss of many high-paying jobs at NWA corporate headquarters in Eagan. For example, MAC will give about $8 million more in revenue sharing for $500,000 more per year in Delta loan paybacks by 2016.
MAC asserts its supposed authority to make such changes exists under current law. "It will take new legislation to stop us," Anderson had said in November.
Analysis of Impact
1) The MAC's negotiating position remains unchanged: some (high-fare) service is retained with less but guaranteed airport revenue. The alternative, taking the remaining $245 million owed and making room for more (lower-fare) airlines, still has not been raised by the staff or any commissioner.
2)The new Delta promise of 400 flights per day "unless business conditions change" raises the bar from the current contract minimum of 187 but lowers the bar from the current actual rate of 500 (and the 2005 peak of about 550.)
3) The effect of such a reduction ducks how the hub, runway usage rates, delays and congestion would be affected. Off-peak operations could be dropped, making the hub-peaks less safe without making useful gates and slots available to competing airlines.
4) Existing Delta jobs can still be outsourced or transferred to non-union states down to the 10,000 floor without penalty if business conditions warrant.
5) The present value of loan collateral (pledged airliners and pilot-training facilities) hasn't been updated. Why not?
6) MAC is very wrong to separate the financial renegotiation from post-merger airline staffing and operations issues.
In summary, while the MAC board's back-stiffening Jan.6 is encouraging for the moment, the final loan terms will go far beyond the generous help to Northwest intended by the Legislature in the landmark 1996 bill authorizing expansion of the cramped Minneapolis-Richfield campus rather than a new airport in Dakota County.
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
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."
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.
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:
- 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).
- 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.
- 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.