CHICAGO - Northwest Airlines has reaffirmed its commitment to build two bond-financed airplane maintenance bases in northern Minnesota and will submit a facilities plan to the state by March 15.
Changes in Northwest's maintenance needs and financial situation require the airline to take a second look at the size and scope of the proposed bases in Duluth and Hibbing, Jon Austin, a spokesman for Northwest Airlines, said yesterday.
In 1991, the airline promised to build the bases as part of an agreement with the state and the minneapolis /St. Paul Airports Commission, which agreed to provide $620 million of bond financing for the airline.
If built, the bases would be financed with up to $350 million of bonds issued by the state. Financial storms at Northwest and a lawsuit challenging the state's ability to issue bonds for the airline have delayed base construction plans for more than a year.
"The purpose of [the plan] is to see what, if anything, has to change and what [the bases] will do," Austin said. He said the Eagan, Minn.-based airline will provide the state with progress reports as it drafts the plan.
Austin said it is too early to discuss a timetable for construction and financing of the Duluth airplane maintenance base and Hibbing engine repair base.
State officials familiar with Minnesota's agreement with Northwest did not return phone calls.
Northwest's commitment to build the bases was reaffirmed after John Dasburg. the airline's chief executive, met on Monday with Gov. Arne Carlson, U.S. Rep. James Oberstar, D-Chisholm, and other state and airline officials. Carlson and Oberstar both supported the 1991 agreement with Northwest.
Jim Berard, communications director for Oberstar, said the congressman hopes that construction of the bases will begin this summer. Berard pointed out that new jobs are needed in northern Minnesota to help diversify the area's economy, which has been faltering because of a declining iron ore industry.
Berard said that Northwest in its plan may scale down the number of jobs at the proposed bases, partly because of the airline's cancellation of airplane orders. Last year, Northwest canceled more than $3.5 billion of airplane orders. Under the 1991 agreement, Northwest said it would hire a total of 1,500 employees at the bases.
Legislative changes may be necessary if Northwest's new plan differs from the 1991 agreement, Berard said.
But Austin said Northwest intends to live up to its end of the deal with the state and the airports commission.
"We understand our obligations under the contract and will continue to meet them," Austin said.
In November 1991, Northwest formed an agreement with the state and the Minneapolis/St. Paul Metropolitan Airports Commission to expand the airline's operations in the state using $620 million of taxable and tax-exempt bonds.
The airports commission issued $270 million of taxable general obligation bonds in April 1992 and loaned the proceeds to the airline as part of a sale and leaseback arrangement to help the airline restructure some of its outstanding debt. The $270 million of taxable bonds are rated triple-A by Moody's Investors Service and Standard & Poor's Corp.
Under the second part of the agreement, the state would issue up to $350 million of bonds to finance the construction of the bases. Up to $175 million of the state bonds would carry Minnesota's GO pledge. Rating agency officials say the deal would mark the first time a state has lent its GO pledge to fund capital construction for a major airline.
Austin said the airline's financial picture is looking brighter, noting that third-quarter earnings show that the airline posted a $112.3 million profit. He said the airline is currently restructuring its finances.
In addition, Austin said, Northwest last summer received $886 million in contract concessions from its employees in exchange for up to 37% employee ownership in the company.