Lawmakers hoping to prevent Northwest Airlines from shuttering its Minnesota headquarters as part of a merger with Delta Air Lines might be facing an uphill battle, members of a House committee learned.
Richard B. Hirst, Delta’s general counsel, told the House Local Government and Metropolitan Affairs Committee that the company will move ahead with plans to close Northwest’s corporate headquarters in Eagan and relocate its operations to Delta’s headquarters in Atlanta.
Hirst acknowledged that the move would result in the loss of an undetermined number of jobs in Minnesota, but said the current economic climate made it necessary.
“As you know, [the airlines have] been going through pretty turbulent times, economically,” he said.
Chairwoman Rep. Debra Hilstrom (DFL-Brooklyn Center) said that relocation of the headquarters would violate a 1992 covenant that required Northwest to keep its offices in the Twin Cities in exchange for $270 million in general obligation bonds issued by the Metropolitan Airports Commission. With roughly $245 million of that debt still outstanding, a violation of the covenant would mean that the state could force the Delta to repay the bonds at an accelerated rate.
“The covenants that are currently in place are a contract, and you can’t modify a contract by saying, ‘No, we’re not going to do it,’” Hilstrom said.
Hirst, however, said that early repayment of the debt is a price Delta would be willing to pay. Moreover, he emphasized the potential downside that such punitive actions would have for the state: because the bonds are being repaid at above-market interest rates, early repayment would result in a net loss for the bondholders.
“In uncertain times, liquidity means security for our company and for our people, so we would prefer to leave the bonds in place,” Hirst said.
Rep. Ann Lenczewski (DFL-Bloomington), who chairs the House Taxes Committee, hinted that other reprisals could be in the works, should Delta choose to violate the covenant. Noting that, “A lot of time we subsidize corporations in ways that aren’t direct checks,” Lenczewski said airlines receive subsidies in the form of tax breaks that could potentially be repealed by the Legislature.
Hirst replied that such actions could result in increased employment costs at the airport, which could force Delta to scale back its operations even further. Tom Anderson, general counsel for the MAC, agreed with Hirst’s assessment, commenting that the penalties for violating the covenant were limited. He said MAC has been working with Delta to draft a proposal for a new agreement that would maximize benefits to the state while minimizing the loss of jobs and other negative consequences.