Airports commission, airline should make a new deal on debt.
Ed Bastian, who in all likelihood will be the last CEO of Northwest Airlines, sounds slightly anxious when he discusses the status of talks between the carrier's new parent, Delta Air Lines, and the Metropolitan Airports Commission (MAC).
Bastian remains optimistic that Delta will be able to work out a new deal with the MAC to pay back the remaining $245 million of $270 million in bond debt that the commission took on in 1992 to help Northwest. But in an interview with the Star Tribune earlier this week, Bastian, who remains Delta's president, made clear that he wants to get the matter settled posthaste.
He no doubt realizes that Delta took on a heavy cargo of corporate-image problems when it acquired Northwest. The perception among many Minnesotans is that the state and MAC came to the aid of the carrier in return for promises that the newly merged airline no longer intends to keep. That's at least partly true, although Bastian is willing to keep some of those pledges and make some new ones if the MAC will agree to new terms on the debt agreement.
Can the MAC make a deal that truly benefits Minnesota? It has the leverage necessary to make some important demands, but how far it will be able to push Delta is unclear.
One common misconception is that if Delta violates any of the covenants on the bond agreement -- specifically those dealing with a Minnesota headquarters, hub status and employment levels -- the MAC could demand immediate repayment of the $245 million and keep the money. The agency sold bonds to raise the funds for Northwest to build facilities in Minnesota, so it's the bondholders who will be repaid, not the MAC. Unless Delta and the MAC reach a new agreement, Delta will violate the terms of the deal when it closes Northwest's headquarters. But that will not mean a windfall for the MAC or the state.
Delta has plenty of cash and could pay off the bondholders, but Bastian and Delta General Counsel Ben Hirst made clear this week that the airline would prefer to pay off the debt over the full term of the current agreement, which ends in 2022. Although they declined to specify what Delta would be willing to give up in return, the executives said Delta is in the process of deciding how many of the 1,800 corporate jobs will move from here to Atlanta. They also implied that although the Twin Cities hub status is secure, MSP will lock in a stronger Delta presence if a new agreement is reached. If the airline is forced to pay off the $245 million in a lump sum, Hirst pointed out, the existing covenants would disappear and MSP would become "just another hub in Delta's system.''
Understandably, many Minnesotans are tired of having a direct financial interest in the boom-and-bust airline business. But declining Delta's request to renegotiate the bond debt wouldn't make much sense for the MAC or the state. There's no real upside to immediate repayment of the bonds, and the MAC has the potential leverage in the negotiations to do some good for Minnesota.
Hirst and MAC officials are expected to appear before a legislative committee today to discuss the merger and the bond agreement. One key agenda item should be the impact of the airline's dominance at MSP. If the airport were to become "just another hub'' and have fewer Delta gates postmerger, it just might lead to more competition and lower fares in the Twin Cities. That's significant leverage, too. Delta would counter that a strong hub translates into more nonstop flights to more destinations, which is critical to business travelers. It's a potential tradeoff that needs more discussion.
The business reality is that the new Delta will want to maintain a strong hub and a near-monopoly on gates in the Twin Cities as long as the market remains profitable, with or without a headquarters here or a new deal with the MAC. From that perspective, legislators and MAC officials have some cards to play as the negotiations with Delta heat up. After losing Northwest, Minnesotans can only hope the next airline deal has a better outcome than the last.
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