Northwest CEO Ed Bastian, right, and Delta General Counsel Ben Hirst discussed the Twin Cities hub during an interview at the Star Tribune on Monday.
Glen Stubbe, Star Tribune
Delta wants to alter debt agreement
- Article by: LIZ FEDOR
- Star Tribune
- November 10, 2008 - 10:09 PM
Delta Air Lines executives on Monday reiterated their pledge to repay the Metropolitan Airports Commission the $245 million that Delta's subsidiary, Northwest Airlines, owes on bond debt. But within the next two months, they said they want to renegotiate the covenants -- requiring a headquarters, hub and employment levels -- that were included in the 1992 agreement between Northwest and the MAC.
"As long as this matter remains cloudy or unclear, it doesn't benefit the community," Ed Bastian, Delta president and Northwest CEO, told the Star Tribune in an interview.
Northwest is still based out of its Eagan headquarters. But that headquarters is expected to close at some point after the Federal Aviation Administration allows Delta and Northwest to blend their flight operations, which could occur in late 2009 or early 2010.
Unless Delta and the MAC negotiate a new agreement, Delta would violate the current pact when the headquarters closes and its penalty would be early repayment of all of the bond debt by 2012.
"Our priorities in negotiations with the airline are to retain as many jobs and as much air service in Minnesota as possible," Patrick Hogan, a MAC spokesman, said Monday.
While Delta officials want to fast-track the negotiations process, Hogan said that Northwest and Delta "only recently agreed to engage in discussions with us" regarding hub and headquarters covenants. He added that the MAC had made "repeated overtures" for meetings with Northwest executives since the merger was proposed in April.
"It is the airline that seeks to break its legal agreement with the state of Minnesota, and the onus is on the airline to tell us how they intend to make amends," Hogan said. "The first step is for the airline to submit a written proposal for MAC's consideration. To date, they have not done so."
Ben Hirst, Delta's general counsel who was a Northwest executive when the bond deal was forged, said Gov. Tim Pawlenty and his Finance Department have the authority to enforce the covenants, and Delta also has been in talks with the administration.
"There is general agreement that the key issues of importance to the state are maintaining the hub and maintaining employment here," Hirst said. But on Monday night he said that Delta has not drafted a written proposal yet, because it first wants to reach consensus on the substance of a new agreement.
Whenever Delta repays the money, it will be used to pay the bondholders. Regardless of the payment timetable, the money would not go to the MAC or Legislature for any type of discretionary spending.
Under the current agreement, the bonds would be paid off in 2022 unless terms of the deal are violated, which would trigger an acceleration of those payments by 10 years.
Hirst argued it is in Minnesota's best interest to have some form of covenants in place and allow Delta to repay the debt over a long period of time.
If the debt is paid off in a lump sum, the job and air service requirements would vanish at the same time, Hirst said. "At that point, MSP becomes just another hub in Delta's system like all the other hubs" and would be competing for resources, he said.
"The hub is secure. There's no doubt about that," Bastian said. But he added that there's a practical and immediate consideration about the number of salaried jobs that Delta will retain in Minnesota. There are about 1,800 salaried Northwest employees in Minnesota, including about 1,000 who work out of the Eagan headquarters.
Bastian: speed matters
"Speed is important in this industry," Bastian said and Delta wants to move rapidly to make decisions about blending the management staffs that work in Eagan and at Delta's Atlanta headquarters.
"We've got a lot of people that have come to us and said, 'Where am I going to be working?' " said Bastian, who doesn't want those people to continue to be "in limbo." He wants to resolve the employment covenant issue.
"We are ready to make Delta commitments," Bastian said. "But unless we are having the community ready and the state ready to strike a deal, I would hate for us to lose the window of opportunity."
Hogan said, "The ball is in the airline's court" and the airline must submit a proposal to the MAC if it wants to "get the process moving faster."
The issue has surfaced as the airline industry is facing the potential of a global recession, although Bastian said that he expects the combined Delta and Northwest to be profitable in 2009. The airline industry cut seat capacity this year and is benefiting from a dramatic decline in oil prices.
With the expectation of profitability in 2009, Delta CEO Richard Anderson notified employees late last week that he will be giving a pay raise to nonpilot work groups on Jan. 1. Delta and Northwest unionized pilots already have negotiated their own pay raise.
Most of Delta's workers don't belong to labor unions and they will be getting an unspecified raise next year. But Northwest's unionized flight attendants and ground workers won't be getting the January pay raise for Delta employees. "If you are already covered by a collective bargaining agreement, we're not allowed to apply our pay policies until [union] representation issues are resolved," Anderson said.
That drew a response from the Northwest chapter of the Association of Flight Attendants, which said in a message to its members that "there is nothing at all prohibiting Delta from giving this raise to all workers."
Bastian said Monday that Delta wants to settle the union representation issue as quickly as possible and to bring the Delta and Northwest work groups up to "an industry standard wage" by 2010.
Northwest AFA President Kevin Griffin said Northwest attendants are scheduled to get a 1 percent raise on Jan. 1, 2009, under their current contract negotiated in bankruptcy.
Bastian said that Delta and Northwest attendants recently were granted stock in the new company.
Liz Fedor • 612-673-7709
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