CHICAGO -- A final plan for financing facilities for Northwest Airlines in Minnesota calls for $45 million of bond issuance.
State and local officials are expected to approve the scaled-down plan by next month, according to John Gunyou, the state's finance commissioner.
The revenue bonds, which would be issued by the state, would help finance construction of a $50 million airplane maintenance facility in Duluth. The remaining cost of the Duluth facility, which will provide jobs for up to 350 workers, will be paid by Northwest.
The bonds could be issued in October if the plan receives the necessary approval by Sept. 1 from Gov. Arne Carlson, the city of Duluth, St. Louis County, and the Metropolitan Airports Commission. The Iron Range Resource and Rehabilitation Board, a local authority in northern Minnesota that deals with economic development, recently voted to support the plan, Gunyou said.
About $37.5 million of the $45 million of bonds would be backed by the state's general obligation pledge, he said.
The issuance of the bonds would mark the first time a state has given its GO pledge to benefit a major airline, according to rating agency officials.
Gunyou said that $19.8 million of the bonds with the state's GO pledge would be paid off with lease payments from Northwest Airlines. The remaining $17.7 million of GO bonds would be paid off with revenues from the city of Duluth and a Duluth tax increment financing district that includes the airline facility.
Under the plan, Duluth would provide the bond reserves for the $17.7 million of debt. If the reserves fall below required levels, the state would be able to intercept Duluth's state aid payments to replenish the reserves.
The $7.5 million of debt that would not carry the state's GO pledge would be paid off with Northwest lease payments. St. Louis County would back $2.5 million of the debt with its GO pledge, according to the plan.
The plan also calls for the construction of a $9.7 million Northwest Airline reservation center in Chisholm, Minn., that would provide 600 jobs. The center would be financed by Northwest and funds from the Iron Range Resource and Rehabilitation Board. No bonds would be issued to finance the Chisholm project, Gunyou said.
In exchange for state and local assistance to finance its construction plan, Northwest is required to retain its headquarters in Minnesota, maintain an air transportation hub at the Minneapolis-St. Paul International Airport, maintain Twin Cities employment levels in proportion to its international workforce, and abide by noise abatement agreements.
The construction plan is a downsized version of a 1991 agreement struck by Northwest, the Metropolitan Airports Commission, and Minnesota. Under the agreement, the state agreed to issue up to $350 million of tax-exempt bonds to finance construction of an airplane maintenance facility in Duluth and an engine repair facility in Hibbing for the airline to create a total of 1,500 jobs. About $175 million of the bonds would have carried the state's GO pledge.
The current plan cancels construction of the engine repair facility in Hibbing because of changes in Northwest's aircraft needs.
As part of that agreement, the airports commission issued $270 million of taxable GOs and loaned the proceeds to Northwest in a sale-leaseback arrangement. Proceeds from that bond issue helped Northwest restructure some of its outstanding debt.
