CHICAGO - The Minneapolis-St. Paul Metropolitan Airports Commission this week signed off on a new agreement with Delta Air Lines Inc. that allows the carrier to close its former Northwest Airlines Corp. local headquarters without triggering immediate repayment of $245 million of debt.
In exchange, the commission has Delta's guarantee that it will retain its hub at the Minneapolis-St. Paul International Airport and operate 400 departing flights daily while also preserving 10,000 local jobs. The airline - which acquired Northwest last fall - must repay the bonds issued by the commission with its own general obligation pledge on an accelerated schedule six years ahead of their final maturity in 2022.
Delta also will still remain eligible to receive concession revenues that it would have forfeited under an existing agreement for closing its local headquarters. The airline will receive $10 million in financing assistance for a maintenance and administration building at the Minneapolis-St. Paul airport that would be repaid with rental payments. The airline also agreed to house its regional operations at the airport.
Delta would pay an additional $500,000 in rent through 2014 and then $1 million until 2020. It also must guarantee that at least 250 of its 400 departing flights are on larger planes. The airline currently operates about 400 flights daily. The agreement allows it to shrink its local ranks of 11,500 but only to 10,000.
The chief goal in negotiating a new pact was the preservation of Northwest's local presence.
"The agreement provides a number of benefits protecting the hub, jobs, and flights, and there is a penalty," said commission spokesman Patrick Hogan. "The accelerated bond payment schedule does reduce the risks to taxpayers."
Delta chief executive officer Richard Anderson praised the new deal in a statement.
"This agreement solidifies our commitment to Minnesota and continues to build upon a long-standing relationship that Northwest, and now Delta, will have with the state moving forward," he said.
Delta and the commission entered into negotiations over a revised pact last year as Delta's intention to eventually shutter the old Northwest headquarters in Eagan became clear. Under the prior agreement between the commission and Northwest, the carrier was obligated to keep its hub at the airport and its headquarters in the region, maintain two maintenance hangars, and continue paying off the remaining $245 million from a $275 million 1992 debt issue. If terms were violated, the commission could have demanded repayment of the bonds in 12 to 15 months.
The commission staff presented the deal late last month to its board and at a special meeting earlier this month some members questioned the terms and asked staff members to return to Delta in hopes of winning additional concessions.
Delta refused to renegotiate the key terms and it was expected that the board would sign off on the deal at its Monday meeting after Minnesota Gov. Tim Pawlenty publicly said he favored the new accord. The majority of board members - 12 of 14 - are appointed by Pawlenty along with the chairman, while the mayors of Minneapolis and St. Paul appoint the other two members. The board voted 9 to 1 in favor of the pact, with four members absent and one abstention.
While the commission has worked in recent years to increase competition at the airport, the newly merged airline's importance is reflected in the fact that Northwest accounted for more than 75% of its 18.1 million passengers last year.
Northwest's passenger levels dipped in 2005 and 2006 before increasing again in fiscal 2007 as it emerged from its federal Chapter 11 bankruptcy filed in September 2005. The combined companies elevate Delta to the top spot among air carriers internationally, with expected annual revenue of $35 billion and 75,000 employees.
The airline has said it would maintain all of its current hubs, including Northwest's in Minnesota, Detroit, and Memphis, and Delta's in Atlanta, Cincinnati, New York City, and Salt Lake City, though cuts are being made at some airports that have raised questions over their hub status.
Minneapolis-St. Paul airport has wrapped up most projects under its $3.1 billion capital program for 2010 launched in the late 1990s, including construction of a new runway. The commission recently adopted a $125.8 million capital budget as an $800 million terminal expansion remains on hold.
The terminal plan, known as the 2020 program, was put on indefinite hold after Northwest's bankruptcy filing. The smaller capital program provides funding for a runway extension at the airport, a runway extension at one of the commission's seven smaller airports, and residential noise reduction efforts on a pay-as-you-go basis.
Fitch Ratings and Standard & Poor's rate the airport commission's nearly $800 million of senior-lien debt AA-minus and $830 million of subordinated debt A. Its GO debt carries top marks. Moody's Investors Service does not rate the commission.
Delta's continued presence is also considered crucial as Minneapolis-St. Paul airport struggles in the current economy. The latest financial report shows passenger levels declined 2.8% last year through November. Total revenue from concessions and airline rates and charges are currently under budget by $11 million, or 4.75%, while expenses are down by $4.4 million, or nearly 2%.
Delta's stock was down yesterday in afternoon trading after it reported a $1.4 billion loss for the fourth quarter - a figure that exceeded analysts' expectations. Delta blamed the size of the loss on fuel hedges as crude oil dramatically dropped after the airline had already locked in its costs at higher prices and charges related to the Northwest acquisition.