Northwest Airlines and Duluth resolve abandoned hangar issue
If it goes through, the deal will save the State of Minnesota, Duluth, and a handful of other parties more than $36 million in outstanding debt for the building at the Duluth airport. For Duluth Mayor Herb Bergson, it's a huge relief.
"Under the tentative agreement, the City of Duluth would not have any obligation whatsoever in the future for debt on that Northwest maintenance building," Bergson announced at a City Hall press conference.
"Under the tentative agreement, the City of Duluth would not have any obligation whatsoever in the future for debt on that Northwest maintenance building."
State issued bonds paid for the $47 million maintenance base built in 1995. Northwest Airlines serviced Airbus jets there, employing up to 400 well-paid aircraft mechanics.
But work stopped at the Duluth facility in August of 2005 when mechanics struck Northwest Airlines. The airline declared bankruptcy, and the mechanics were gone.
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Northwest held a lease on the base, but was not expected to renew, putting future debt payments in jeopardy. Bergson says it would have been difficult to find a new tenant, since an incoming employer would be expected to cover a debt estimated at some $700 a day.
Under this agreement, Bergson says Duluth's economic development agency, DEDA, gets the base free and clear.
"DEDA would take complete ownership of the maintenance facility," he says. "It would allow us to market the facility at a much more affordable rate than we could previously. This coupled with the changes we have been working on in the legislature would allow us to seek large employers on and around the United States and even into an international level."
A bill in the legislature will drop a requirement the base be occupied only by a Minnesota-based corporation.
The new financial deal is fairly complicated. This is how it works.
Department of Finance Assistant Commissioner Peter Sausen says while the state sold the construction bonds, Northwest put up collateral to secure those bonds.
"So the deal will work that the state will return a form of the collateral to Northwest Airlines, and in exchange the state will get an unsecured claim in the bankruptcy process," Sausen says. "And the unsecured claim comes in the form of stock in the new Northwest Airlines, after they emerge from bankruptcy, which has value."
Claims like that can be sold for cash to an investor. That cash will be used to redeem about $36 million in outstanding bonds. It's a deal that Sausen says is good for the state and the city of Duluth. Duluth is responsible for two bond payments: one coming from taxes Northwest is supposed to be paying; the other coming from a franchise fee the city collects from Minnesota Power Company.
"It's not a done deal yet," Sausen stresses. "But assuming everything works, the city will not have to put their franchise fee into paying off that series of bonds, and the bonds that are paid from property taxes will be paid off so the city will not have to dip into the city treasury to pay on those bonds which they otherwise will have to."
In addition, there will be money coming back to Duluth, its economic development agency, St. Louis County and Minnesota Power Company for payments they've had to make since Northwest went into bankruptcy.
A statement from Northwest Airlines says the company appreciates the cooperation of the other parties. It says the airline will help in seeking a new tenant for the maintenance base. It also credits Congressman Jim Oberstar for providing leadership.
The agreement needs approvals, most notably from the bankruptcy court. That's expected by early May.