VOL. 123 | NO. 12 | Thursday, January 17, 2008
Merger Math: Northwest Could Face $215M Penalty if it Moves Headquarters Out of Minnesota
By JOSHUA FREED | AP Business Writer
MINNEAPOLIS (AP) - If another carrier combines with Northwest Airlines, where would the duo be based? The answer could be worth $215 million.
Northwest stands to lose that much in rebates and discounts at the Minneapolis airport if it doesn't live up to written commitments to keep a hub and headquarters here. That complicates the already tricky calculations as Northwest looks into a potential merger. It could also be forced into early repayment of a $245 million bond.
Two Northwest Airlines Corp. executives told Minnesota Rep. Jim Oberstar that the Eagan-based airline is holding talks with Delta Air Lines Inc., said Oberstar, a Democrat and chairman of the House Transportation and Infrastructure Committee.
"They confirmed that there are talks under way with Delta and Northwest, and that Delta is also exploring options with United Airlines, in both cases for a merger," Oberstar said on Wednesday.
Oberstar said he invited the two executives to his office on Tuesday because he wanted to hear firsthand about any talks between Northwest and other carriers, which had been reported but not confirmed by the airlines. Oberstar said he gathered that the talks were in early stages.
Northwest and United have been seen as the best fit for Delta. Both have strong Pacific routes that would complement Delta's flights across the Atlantic. Either combination would create the nation's largest airline - ensuring antitrust scrutiny. Oberstar said he would oppose any major airline mergers.
"We did not deregulate aviation in 1978 to create consolidation of the industry, but rather to expand competition," Oberstar said. "And we're at a point now where consolidation will result in a rather rapid collapse of the industry into two or three megacarriers worldwide."
Also Wednesday, Sen. Johnny Isakson, R-Ga., said Delta CEO Richard Anderson confirmed in a phone conversation Friday that "as far as he was concerned" Delta would merge only if it keeps its name and maintains its current presence in Atlanta, where it is headquartered.
A headquarters move for Northwest could prove expensive.
Last year the company signed an agreement with the Metropolitan Airports Commission, which runs the airport, pledging to keep its chief executive, chief financial officer, and "a majority of its other senior management team members" in Minnesota, and to maintain a hub here.
The agreement - which would also apply to a company that bought Northwest - gives Northwest an estimated $147 million in concessions revenue rebates and $68 million in rent reductions on a maintenance hangar through 2020.
Similar hub-and-headquarters language is attached to bonds issued in 1992 by the airport authority on Northwest's behalf. They include an agreement - which survived bankruptcy - that Northwest could be forced to pay the bonds back early if its headquarters leaves Minnesota. It still owes $245 million on the bonds, which are due by 2022, said Patrick Hogan, spokesman for the Metropolitan Airports Commission.
Associated Press Writer Ben Evans in Washington and AP Business Writer Harry R. Weber in Atlanta contributed to this report.
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