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State unlikely to hold bag on loan to Northwest, officials say
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Some airline analysts believe Northwest could soon file for Chapter 11 bankruptcy protection, possibly before October 17, when more restrictive bankruptcy laws go into effect. (MPR Photo/Annie Baxter)

St. Paul, Minn. — Back in 1991, Minnesota lawmakers approved a $270 million loan to Northwest, as part of a nearly $800 million assistance package. In exchange for the aid package, Northwest agreed to build two maintenance bases in northern Minnesota, although the plan was later scaled back.

The $270 million loan was used to pay off the company's debt from a leveraged buyout of the airline in 1989. The Metropolitan Airports Commission issued bonds in 1992, and the company has been making quarterly payments on the 30-year loan ever since.

MAC spokesman Patrick Hogan says the company refinanced the loan in 2002, and pays about $22 million a year. Hogan says the Airports Commission is ultimately liable if Northwest can't make payments.

"We do think that we're in pretty good shape. Northwest does have collateral that it has put up to help ensure that these bonds are repaid should something happen, and that ranges everything from their flight training center in Eagan to revenues they get from food concessions on the G concourse," according to Hogan.

Hogan says even if Northwest declared bankruptcy, the MAC would be a secured debtor, and would have a better chance of repayment than an unsecured creditor. Some airline analysts believe Northwest could soon file for Chapter 11 bankruptcy protection, possibly before October 17, when more restrictive bankruptcy laws go into effect.

State Sen. Steve Murphy, DFL-Red Wing has long been concerned about Northwest's financial situation. Murphy chairs the Senate Transportation Committee. He invited Northwest Chief Executive Doug Steenland to testify before his committee this spring. Murphy says the company reassured legislators about the loan and the maintenance jobs.

"We were told that come hell or high water, Northwest is going to pay those back, and they're going to keep those jobs in Minnesota," Murphy says.

But asked whether he believes the airline will, Murphy said "no."

When asked about the state loan and the prospect for future payments, Northwest responded with a statement that said "Northwest continues to make its payments."

Murphy says both sides need to get back to the bargaining table and end the mechanics' strike. While he doesn't think the Legislature can get involved in the labor-management dispute, he does think Gov. Pawlenty should be talking to both sides. Pawlenty is on a family vacation this week, but spokesman Brian McClung says the Pawlenty administration has been in contact with both sides to urge them to return to the bargaining table.

"The role of the governor in something like this: to encourage both sides to work things out, and get back to work as soon as possible, and so we're doing that. We're asking Northwest, asking the union, to work through the issues that they have," McClung says.

McClung says the company and its employees are a tremendous asset to the state. The airline is one of the state's largest employers. Steenland told legislators this spring that the company has about 16,000 workers in Minnesota. And many legislators say that Northwest's financial stability is in the state's best interest.

DFL Senate Majority Leader Dean Johnson of Willmar says Minnesota benefits from being home to a major airline hub. He voted for the state loan to Northwest in the early '90s, because he was worried the airline would move its corporate headquarters to another state.

"I'm hopeful that Northwest Airlines will live up to their financial obligations back to the people of Minnesota. We took a risk with them and we expect that they will repay this loan with principle and interest," Johnson says.

Johnson says he'll fly Northwest this weekend to report for military duty in Alabama. And Johnson says not one person has called his Senate office or approached him at the State Fair to talk about the strike. Many other legislators have similar reports, and some say they're surprised by the lack of constituent calls on the matter.