|South Metro Airport Action Council
** S M A A C **
MAC Stiffens Back, Delays Vote on Delta Pact
By Jim Spensley and Dick Saunders
January 7, 2009
Metropolitan Airports Commission (MAC) members, citing numerous ambiguities in their first look, voted Jan. 6 to delay a decision on a revised loan agreement with Delta Airlines for two weeks.
After three hours of intense questioning of General Counsel Thomas Anderson, commissioners voted unanimously to seek staff clarification on a wide variety of issues seen as impacting the future of Minnesota airline jobs.
Commissioners accepted a working draft as a "framework," but sought to tighten contract enforcement provisions, clarify breach definitions, extend job guarantees, and seek future sources of potential job growth from the recently merged Delta and Northwest businesses.
Notably, MAC Chairman Jack Lanners, Vice Chairman Bert McKasy and Executive Director Jeff Hamiel, all of whom favored the sense of the preliminary draft, supported the delay to Jan. 26 to clear up remaining questions.
The unexpected stiffening of commissioner concerns came in the face of a warning from Delta General Counsel Ben Hirst that any modifications to the pending agreement's terms "could jeopardize the entire package." "Both sides have negotiated every word," he said, adding that the new company had made major concessions to maintain existing flight and job levels.
Observers had expected the working draft to have been approved with little discussion, as Delta had pressed for a decision by Dec. 31 in order to advise employees facing job transfers or further layoffs of their job status.
In probably the most significant action, McKasy proposed that Delta's present job commitment of 10,000 Minnesota employees be extended from 2013 to 2016, when the company's $270-million loan from MAC is to be paid in full. Others asked for a clearer definition of job descriptions to be retained at the new "Delta North" subsidiary headquarters on the MSP campus through 2012;
Also sought was assurance that NWA's pilot training center in Eagan could be modified to train for Boeing 787 jets(scheduled to begin service in late 2010-2011) as NWA grounds aging DC-9s and B-747s, and whether the Eagan property could house some Delta pilot training now being conducted elsewhere in the Delta system.
The MAC staff also agreed to research further any requirement to seek specific legislative action on the new pact. Anderson noted that NWA is presently required to only report yearly on its existing job and flight commitments. After the meeting, a MAC legislative liaison said key Senate and House leaders had not objected to language changes under way.
Two SMAAC members recommended that commissioners seek answers to six questions:
1) Will the hub be run at a safer, lower rate during peak-hour periods as a result of ongoing flight reductions?
2) Are there adequate time slots in the day's schedule to accommodate forthcoming service from Southwest Airlines and any other low-cost airlines?
3) Will Delta seek to retain options on unused gates (and a competitive head-start) when the economy recovers?
4) What, if any, is the upside for the Minnesota economy if there are both fewer flights and less airline competition?
5) What, in the interim, will be the comparative indirect benefits to the state between the old and new loan agreements (e. g. taxable revenues of airline suppliers, increased commerce and lower (or higher) air fares?
6) What negative impacts face MSP if Delta is forced to take further corrective actions toreduce expenses if the deepening world economic crisis continues for an extended period?
SMAAC believes the sole remedy available to the public for a breach of theloan contract was inadequate protection -- paying off the loan balance over 18 months. Several times since the 1992 loan was made, MAC agreed to changes and made keeping loan covenants part of other arrangements with Northwest, such as lease and landing fee reductions and concessions revenue sharing.
Overall, SMAAC believes any new loan agreement, even after Delta's concession to establish a subsidiary headquarters at MSP, will fail to obtain benefits comparable to the loss of many high-paying jobs at NWA corporate headquarters in Eagan. For example, MAC will give about $8 million more in revenue sharing for $500,000 more per year in Delta loan paybacks by 2016.
MAC asserts its supposed authority to make such changes exists under current law. "It will take new legislation to stop us," Anderson had said in November.
Analysis of Impact
1) The MAC's negotiating position remains unchanged: some (high-fare) service is retained with less but guaranteed airport revenue. The alternative, taking the remaining $245 million owed and making room for more (lower-fare) airlines, still has not been raised by the staff or any commissioner.
2)The new Delta promise of 400 flights per day "unless business conditions change" raises the bar from the current contract minimum of 187 but lowers the bar from the current actual rate of 500 (and the 2005 peak of about 550.)
3) The effect of such a reduction ducks how the hub, runway usage rates, delays and congestion would be affected. Off-peak operations could be dropped, making the hub-peaks less safe without making useful gates and slots available to competing airlines.
4) Existing Delta jobs can still be outsourced or transferred to non-union states down to the 10,000 floor without penalty if business conditions warrant.
5) The present value of loan collateral (pledged airliners and pilot-training facilities) hasn't been updated. Why not?
6) MAC is very wrong to separate the financial renegotiation from post-merger airline staffing and operations issues.
In summary, while the MAC board's back-stiffening Jan.6 is encouraging for the moment, the final loan terms will go far beyond the generous help to Northwest intended by the Legislature in the landmark 1996 bill authorizing expansion of the cramped Minneapolis-Richfield campus rather than a new airport in Dakota County.