A Delta ticket agent helped a passenger at Minneapolis-St. Paul International Airport.
David Joles, Star Tribune
Delta repays $175M loan, sparking job fears
- Article by: WENDY LEE
- Star Tribune
- October 26, 2011 - 10:54 AM
The safety net for keeping Delta Air Lines workers in Minnesota is going away.
Delta, the largest carrier at Minneapolis-St. Paul International Airport, plans to pay off a loan it owes the Metropolitan Airports Commission Wednesday, freeing it from obligations to have at least 10,000 employees in the state.
The airline said in June that it would move 400 training and technical jobs from Eagan to Atlanta to save money, triggering the loan repayment. Delta owed $175 million on a loan that was once $245 million.
But analysts say it's possible more Minnesota jobs could leave the state as Delta plans to consolidate operations in the months ahead. Like many airlines, Delta has been struggling to manage weaker consumer demand and higher fuel costs.
Delta cut flights by 1 percent in the most recent quarter, and it plans to cut as much as 5 percent through the rest of the year and as much as 3 percent in 2012.
"They wouldn't be paying off the loans for yucks and grins," said Mike Boyd, president of Boyd Group International, an aviation consulting firm. "Whatever makes sense for Delta from a business point of view, they are going to do it."
The airline contends it is committed to its Minneapolis-St. Paul hub and said the repayment won't lead to further job cuts. Delta currently employs 12,000 in Minnesota, above the 10,000-employee minimum the loan required.
"I think Delta is here for the long haul," said travel expert Terry Trippler. "This is a profitable hub. There would be no reason to reduce the hub or get rid of it."
After all, Delta spent nearly $3 billion to acquire Northwest Airlines in 2008, primarily because it wanted to increase its market share by assuming Northwest's hubs -- and the routes they serve.
The carrier has also exceeded the minimum number of departing flights required by its current operating lease at the airport. Delta now has 480 departures, 120 more flights than it must maintain. Minneapolis-St. Paul is Delta's second-busiest hub.
"We're very committed to Minnesota," said Delta's CEO Richard Anderson. "We made a lot of investments there and we will continue to make a lot of investments there."
Delta owed the Metropolitan Airports Commission for a 1992 loan to help then-struggling Northwest. That debt agreement, revised after Delta acquired Northwest, required it to retain its Eagan training centers -- or repay the money.
When the airline announced in June that it would move hundreds of jobs from Eagan to Atlanta, Minnesota politicians were outraged because it appeared the airline was abandoning its commitment to the state even after Delta vowed to keep its strong presence here after the merger.
But government officials were much more measured in their reaction Tuesday, saying they would do what they can to support the airline.
"Delta and its Minnesota employees are extremely important to our state. I will continue to express to the company's leadership my desire to do everything possible to assist their continued success and growth here," said Gov. Mark Dayton, in a statement.
U.S. Rep. John Kline, R-Minn., added, "While the decision by Delta earlier this year to move jobs out of the state was extremely disappointing, I expect the airline to maintain its commitment to the thousands of Minnesota workers at MSP."
Delta is also investing money in one of its key concourses at the airport, which will offer customers more food options and allow travelers to pre-order food from airport restaurants before boarding their flights.
"That gives me more assurance than anything that they are not abandoning the Twin Cities, that they see this as an important part of their business," said Tom Anderson, the commission's general counsel.
Delta said the repayment is part of its plan to lower its $14 billion debt to $10 billion by 2013. It had originally planned to pay off the loan next year, but decided to move it up to today .
The news came on the same day Delta reported its third-quarter profits missed Wall Street's expectations due to higher fuel costs. Delta shares closed at $8.44 a share on Tuesday, down 5 percent.
Delta Air Lines Inc. reported net income of $549 million, or 65 cents per share, up 50 percent from $366 million, or 43 cents, a year earlier. Revenue rose 10 percent to $9.8 billion.
Before losses on fuel hedging and other items, Delta would have earned 91 cents. That was 3 cents less than expected by analysts surveyed by FactSet.
Some commission officials said they are pleased that Delta's business is profitable.
"The fact that they have a viable business gives me more assurance than a lease that says they are going to keep the hub here," Anderson said.
The Associated Press contributed to this report. Wendy Lee • 612-673-1712
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