CHICAGO -- Members of a panel whose approval is needed before $699 million of bonds can be issued by Minnesota governments for Northwest Airlines expressed doubts about the project last week, and similar concerns prompted a major rating agency to raise questions about the deal.

The Metropolitan Airports Commission -- the owner and operator of Minneapolis/St. Paul International Airport -- is scheduled to vote tomorrow on whether they will participate in the financing to help the airline expand its operations. And some members of the commission, made up of gubernatorial appointees, said it is unclear how the panel will vote.

"I think most of us are sitting right on the fence and could fall either way," said commission member Mark Brataas.

Questions about Northwest's ability to make lease payments on the bonds also were raised last Friday by Standard & Poor's Corp.

The rating agency wrote in a press release that Northwest's B rating on its senior-lien debt "reflects its vulnerable creditworthiness." It also said the airline's proposal to pledge some of its assets as collateral "does not fully insulate the state of the airports commission from having to actually 'step-up' to debt repayment" should the airline go bankrupt or fail to make its lease payments.

Under a tentative agreement announced Oct. 12 by Gov. Arne Carlson and Northwest President John Dasburg, the state and airports commission would issue up to $699 million of general obligation and lease-backed revenue bonds.

The state would issue up to $350 million of bonds to finance the construction of an airplane maintenance facility in Duluth and an engine repair facility in Hibbing. Up to $175 million would carry the state's GO pledge. The rest would be lease-backed revenue bonds.

The airports commission would issue up to $349 million of bonds and lend $320 million of the proceeds to Northwest to finance undetermined future expansion of the airline's operations.

Only Gov. Carlson is required to approve the issuance of the state bonds, and he has said he will do so. But three other government panels -- the airports commission, the Iron Range Resource and Rehabilitation Board and the Legilature's Commission on Planning and Fiscal Policy -- are required to ratify the deal before the airports commission could issue its bonds.

Members of both the Legislature's commission and the Iron Range board said there is little doubt those two panels will approve the proposal. But how the airports commission will vote is in question, according to members.

One member, however, said he more than likely will vote against the deal. John Dimle said he was concerned about a Price Waterhouse analysis of Northwest released last week that found the carrier to be "highly leveraged and thinly capitalized," with outstanding debt of about $2.6 billion.

"Our loan would just become an add-on to the debt," he said.

Despite those concerns, commission member Ronald Jerich said he believes the commission will approve the deal. "I believe Northwest has the ability to make the lease payments," he said. "This is a viable deal."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.