Northwest looks to the airport for financial help

Merger target?
Northwest Airlines, the fifth-largest U.S. carrier, may be feeling pressure to combine with another airline as rivals look to grow through acquisitions.
Tim Boyle/Getty Images

Northwest wants the Metropolitan Airports Commission to reduce landing fees and other charges airlines have to pay. And Northwest wants airlines to get more of the money the commission gets from airport merchants.

Eagan-based Northwest argues it's a matter of making the Twin Cities airport competitive with other big airports that have been lowering fees and sharing more revenue with airlines.

Northwest, which dominates the Twin Cities airport, would reap a $240 million benefit over 15 years. Other airlines would share about $40 million.

But the airports commission wants some things in exchange.

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"Northwest has a number of options that could cost the airports commission a great deal of money and could impact air service here."

"Our goal and objective is that Northwest maintain its hub and headquarters here," says airports commission chairman John Lanners.

Lanners is willing to help Northwest, but only if the commission can lock the airline into a long-term deal that protects airport finances -- and keeps Northwest's Twin Cities hub and headquarters. Lanners and most other commissioners want a deal that can't be undone in bankruptcy court or by a merger.

Lanners knows Pittsburgh and St. Louis suffered deep cuts in air service after they were abandoned as major hubs.

Northwest says it's willing to keep Minneapolis-St. Paul International as a hub airport. Currently, Northwest averages nearly 300 nonstop flights a day out of the Twin Cities. The airline flies to 112 cities, including Tokyo and Amsterdam.

But Northwest won't commit to keeping its corporate headquarters in the state. At a recent airports commission meeting, Northwest executive Jim Greenwald said the headquarters requirement is a deal-breaker.

"After vetting this throughout my company, I have to come back and tell you, if it passes we could not sign it," Greenwald said. "I'm sorry about that."

It's the a hub, not the headquarters, that matters the most to the Twin Cities, Greenwald suggested.

Northwest headquarters
Northwest Airlines has its headquarters in Eagan.
MPR Photo/Martin Moylan

That resistance came in the wake of unconfirmed reports that Northwest has had merger talks with Atlanta-based Delta Airlines. Some observers have wondered if Northwest wants to keep its headquarters options open, because a merger remains possible.

Northwest won't say how many employees work at its Eagan headquarters. But a report from the city of Eagan suggests about one-fifth of Northwest's 11,500 Minnesota employees are at the headquarters.

Airline mergers aren't the only thing that worries the airports commission.

Northwest is still in bankruptcy, and could force the MAC to negotiate cheaper gate leases at the airport. MAC spokesman Pat Hogan says Northwest could also walk away from a $290 million loan it has from the airports commission.

Declining employment
Northwest Airlines has cut employment across the system dramatically in the last few years. In Minnesota alone, 9,000 jobs have been cut.
MPR graphic

"Northwest has a number of options that could cost the airports commission a great deal of money, and could impact air service here," says Hogan. "Their commitment to keep their headquarters and hub here are part of the loan agreement they made with us back in the 1990s. And if they reject that deal, they are also rejecting that commitment to keep a headquarters and hub here."

There is collateral to cover the loan. But with Northwest in bankruptcy, collecting on it could be difficult.

Hogan says the airport can afford to help Northwest and other airlines without passing on costs to travelers and taxpayers.

"We're not prepared to give away the store," says Hogan. "We're making sure we have enough money to pay our debt, that we will not have to rely on the tax base of the Twin Cities, and we will protect the air service we have worked so hard to gain."

Kelly Hauch
Realtor Kelly Hauch, right, has focused on serving employees of Northwest Airlines.
MPR Photo/Martin Moylan

So, the commission's choices seem to come down to this: Help Northwest in exchange for financial and other commitments. Or don't give Northwest what it wants -- and see what happens.

Airports commissioner Daniel Boivin figures the airport might be better off if it took a hands-off approach.

In almost any merger, Boivin expects Northwest's Minnesota headquarters will be shut down.

"If Delta acquires Northwest, I got to believe they're going to move everyone down to Georgia," says Boivin.

But Boivin doesn't see Northwest dropping the Twin Cities as a hub airport.

"The only way they would ever desert this hub, frankly, is if they merged with American or United, and one of those companies says, 'We're just going to have a hub in Chicago.' Otherwise, any other merger or business plan has to keep this place here, because with the number of Fortune 500 companies per capita, we are a high-revenue market for an airline."

For its part, Northwest declined to comment for this story. But many people in the business community fear Northwest will cut local jobs and flights if the airports commission doesn't help the airline.

Realtor Kelly Hauch of Lakeville says Northwest employees have accounted for up to 70 percent of her sales some years. Lately, though, with the airline's troubles, only about ome-fifth of her sales involve Northwest employees. Helping Northwest is a sound investment, says Hauch.

"Northwest is a huge factor in the Twin Cites economy," she says. "Ask Pittsburgh if they want US Air back. If we lose Northwest, I think the Twin Cites will really feel that loss."

The Minnesota Business Partnership agrees with Hauch. The partnership's members include the CEOs of the state's 100 largest companies, Northwest among them. Executive director Charlie Weaver says top-notch air service helps keep powerhouse companies such as Cargill, Medtronic and Target in Minnesota.

"I cannot understate the critical nature of having a hub here, not just for business travelers but for all travelers," says Weaver. "Having a hub here means much better service to rural Minnesota."

Weaver says the Twin Cites will lose jobs if the airport loses its hub status.

"It would make it harder for us to keep the great large international companies we have right now, and certainly almost impossible to recruit new international or very large companies to the Twin Cities," says Weaver.

But airports commission chairman Lanners is optimistic about reaching a deal with Northwest.

"I'm an optimist, he says. "I'm fairly confident -- with all the lawyers on both sides -- that we'll come up with proper wording and get done what we believe needs to be done."

If the MAC and Northwest are going to get a deal, it'll likely be struck by June. That's when Northwest plans to leave bankruptcy.

The airports commission says any help package for the airlines would not go into effect unless Northwest emerges from bankruptcy and meets all conditions set by the commission.