Jay Salmen, left, introduced Tom Petters at an open house for Petters Aviation on Thursday. In his remarks Petters called the federal probe “unnecessary.”
Glen Stubbe, Star Tribune
Tom Petters back to business after raid
- Article by: LIZ FEDOR and DAVID PHELPS
- Star Tribune staff writers
- September 25, 2008 - 10:23 PM
In his first public comments since his home and business offices were raided by federal agents Wednesday, businessman Tom Petters called the government's investigation an "unnecessary situation."
Speaking at an event Thursday night celebrating a new Petters Aviation facility, Petters voiced confidence that his companies will thrive and he plans to develop more aviation businesses. "We'll be adding more jobs in Minnesota," he told the crowd of more than 100. "We're excited about that."
Pointing to the freshly painted hangar, planes and new offices, where charter and business jets are being marketed, he said, "This is a world-class facility with world-class people."
Still, for Sun Country Airlines, owned by Petters Aviation, neither of which were the target of the federal raid, the investigation comes at a trying time as it enters the slow fall flying season.
Sun Country Airlines might not be flying today if not for Tom Petters, who bought a controlling interest in the airline and has injected millions of dollars to keep it going.
The question now is, can the cash-strapped airline survive a federal investigation involving its chairman?
The low-fare carrier has not had a full year of profitability since 2003. Petters has subsidized operating losses for the carrier, which finished the second quarter with a slim, $2.3 million cash cushion. Petters has loaned Sun Country more than $25 million in recent months, according to the airline's top executive.
It remains to be seen whether Petters will be able to continue such support during a major federal investigation. On Thursday, Petters retained former federal prosecutor Jon Hopeman, of Minneapolis, as his attorney.
Petters owns myriad businesses. But only Petters Company Inc., a financing entity, was targeted in the probe, company officials said.
Petters himself made that distinction Thursday evening. "Our companies are ready and raring to go," Petters told customers and friends at Petters' hangar at the Minneapolis-St. Paul International Airport. "Sun Country planes are flying high in the sky."
He declined to be interviewed Thursday.
Petters also tried to reassure his employees earlier Thursday at Petters Group Worldwide headquarters in Minnetonka, just one day after federal agents sent them home so authorities could conduct a daylong search for evidence.
"Tom has a big heart," said Petters spokeswoman Andrea Miller. "He truly apologized that this happened, causing the disruption to the office."
At Sun Country, CEO Stan Gadek declined to be interviewed Thursday. He had stressed Wednesday night, however, that Sun Country would continue normal operations.
Sun Country carried 1.4 million passengers through the Minneapolis-St. Paul airport in 2007, making it the No. 2 carrier. Northwest Airlines, the airport's largest carrier, had 22.7 million passengers last year.
Sun Country entered 2008 cash poor and had a net loss of $21.8 million through the first half of this year, according to documents filed with the U.S. Department of Transportation. Those filings show it borrowed $49.7 million to fund operations and make $33.2 million in debt payments.
"I expect Sun Country to continue to right-size its fleet and pursue more charter relationships in an attempt to recover their costs," said former Sun Country CEO Shaun Nugent, who left the carrier in the spring of 2007.
Nugent, who joined Sun Country as chief financial officer, said Petters owns all of the voting shares at Sun Country and has chosen to fund the gap between revenue and expenses because he wanted to develop a scheduled-service business model.
However, Nugent said, since Gadek became CEO in March, he and his team have "made significant strides on reinventing the business model" and have forged a hybrid strategy of charters and scheduled service.
By shifting a greater portion of the business to military charters, Nugent said, Sun Country erased the big losses it was running up in the past few quarters.
Under the military contracts, Sun Country is able to recoup fuel costs -- its No. 1 operating expense.
Nugent said he doesn't know what the investigation of Petters may be about, but he noted the timing was bad. The fall season is historically a period that causes a "cash drain" at Sun Country because consumer demand falls, Nugent said. "They'll need to figure out a way to fund that shortfall, but I expect that they will."
In an interview last week, Gadek said that Sun Country turned a profit in July and August. "We will lose money in September, but significantly less money than we lost last year," he said at the time.
Gadek also indicated that he was still talking with officials at the Metropolitan Airports Commission (MAC) about financial assistance for Sun Country. In June, he raised the possibility of the need for $50 million.
"The fact that we've had some success here in the last two months is not enough, in my opinion, to pull back" from seeking help, Gadek said.
MAC Chairman Jack Lanners said Thursday that he would "love to see Sun Country survive, thrive and grow." But he added that he's uncertain whether Sun Country will ultimately ask the MAC for help.
MAC spokesman Patrick Hogan said it's unclear what effect, if any, the federal investigation might have on Sun Country's future.
But it's clear that Petters and his companies are attempting to convey a message of stability following the high-profile raid by federal agents on his headquarters and home.
Petters Group Worldwide, Sun Country and Fingerhut Direct Marketing have all issued statements saying they are doing "business as usual."
Hopeman, the attorney, met with Petters on Thursday morning and said he is prepared to begin his own investigation into the matters surrounding the federal inquiry. At this point, however, it's unclear what it involves.
Hopeman described the material crated out of Petters' Wayzata home and headquarters on Wednesday as electronic and paper "business records."
"We want to find out what's going on," Hopeman said. "We just don't know."
With a smile on his face at the airport hangar, Petters told those gathered that the FBI raid, "was not the media attention we wanted." He added of the investigation, "That too shall pass."
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