Champion Air, a Bloomington-based charter carrier saddled with an aging and inefficient fleet of Boeing 727s, announced Monday that it will go out of business May 31.

About 550 employees will lose their jobs. Minnesotans are familiar with Champion because MLT Vacations contracted with Champion for many of its charter flights to leisure destinations.

But MLT, a subsidiary of Northwest Airlines, is phasing out its business with Champion this year. And so is the National Basketball Association, which had a multiyear contract with Champion to transport 13 teams.

MLT and the NBA provided the vast majority of Champion's revenue.

"Our business model is no longer viable in a world of $110 oil, a struggling economy and rapidly changing demand for services," Lee Steele, Champion's CEO, said Monday in a statement.

Champion's financial problems surfaced long before oil blasted above $100 a barrel. On Oct. 4, when oil was about $81 a barrel, Steele wrote to federal mediators to implore them to place pilot contract talks on hold. In a candid letter, Steele said that Champion needed investors to support a "renewed business plan with a modern fleet" or Champion risked ending operations in August.

Steele said Monday that Champion had failed to "attract new capital and new investors" so the carrier's executives and board decided "to wind up our operations in a responsible, deliberate manner."

Joe Battaglia, a Teamsters business agent, said: "We had every reason to believe that the flying would be at least through the end of the summer." The Teamsters have been attempting to negotiate their first contract for about 70 to 75 Champion mechanics, Battaglia said.

He added that his next order of business is focusing on negotiating exit packages for the mechanics and about 160 flight attendants and nine dispatchers who also are represented by the Teamsters.

Matt Marsh, chairman of Champion's branch of the Air Line Pilots Association (ALPA), said that pilots have been leaving the carrier steadily as its future became more uncertain. In June, 145 pilots were on the payroll, but that number has slipped to 75 pilots.

The announcement of Champion's demise comes as Honolulu-based Aloha Airlines said it would shut down its passenger operations after Monday's flights. Other carriers have been reducing capacity because they want to eliminate routes made unprofitable by high fuel costs.

In 2006, privately held Champion lost $488,000 on operating revenue of $155 million. It lost nearly $400,000 in the first half of 2007.

NWA replaces Champion

The flying that Champion was performing for Northwest's MLT subsidiary now will be done by Northwest.

Tammy Lee, a Northwest spokeswoman, said the shift was made for economic reasons. "With the high cost of fuel, the [three-engine] Champion 727s were too expensive to operate," Lee said Monday. "Further, with our restructuring and the lower operating costs that resulted from that, it was more economical to fly leisure travelers" on Northwest flights.

In addition, Northwest has secured a contract to fly NBA teams. In a January memo to pilots, Northwest said that seven Airbus A319s would be specially-configured for NBA flying.

In recent months, Lee said that Northwest has hired several Champion pilots based on their "quality and experience."

Champion got its start in 1993 as MGM Grand Air, offering air service to high-end customers, including corporate executives and actors. Dick Page, of Edina, acquired the operating certificate from MGM Grand Air and founded Champion.

"I'm very sad for the employees," Page, no longer associated with the airline, said Monday after learning of the planned shutdown. But he wasn't surprised. He said that "it's been public for quite some time that Champion has been struggling."

Minnesota Twins owner Carl Pohlad and Northwest acquired Champion in 1997, and then sold the charter carrier in 2003 to five Champion executives, including then-Champion CEO Steve Spellman. He left in 2007 for an executive post at Sun Country Airlines.

Liz Fedor • 612-673-7709