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Airport’s “Economic Engine” Stalling

July 04, 2011 By Jim Spensley, Hindsight Community Fellow

Recently, Delta Air Lines received bipartisan criticism from Minnesota Congressmen Keith Ellison and John Kline because it “broke a promise to keep former Northwest Airlines jobs in Minnesota" after its 2008 takeover.

The reaction followed Delta's announcement that pilot training, flight attendant training and flight simulator jobs, and much of the costly simulator equipment, will move from the former Northwest center in Eagan to a similar facility near Atlanta. Some engineering and technical jobs at MSP will be transferred too.

The former Northwest center was one of the top pilot training facilities in the world. Delta claimed the move would save costs because rising fuel prices are the new reality for our business.

Say what? The only connection to fuel costs is Delta management’s tactical decision to convert assets to cash for current operations.

Route changes and more fuel-efficient airliners would more readily reduce fuel consumption. The major airlines recover fuel costs in high fares and fees applied particularly where competition is scarce, e.g. at the hub airports they dominate by being the biggest payer for airport privileges and services.

The truth is our elected officials backed down when they had chances to strengthen protections for Minnesota’s aviation workers and travelers. As part of a loan agreement, Northwest Airlines said it would operate a hub here, keep its corporate headquarters here, and engage in other businesses and jobs.

The state and the Metropolitan Airports Commission also made major capital improvements at MSP that included a new runway, which greatly benefitted Northwest and now Delta.

It was thought that the hub operations revenue and the headquarters and other economic activity (payroll and purchases) would offset the capital cost and debt-service for the additional safe capacity at MSP used by connecting passengers.
For background, Northwest received a $315 million loan from the Metropolitan Airports Commission. In return, Northwest agreed to keep about 17,000 existing jobs in Minnesota.

Governor Pawlenty and the airport commissioners should have gotten a better deal from Northwest with these re-negotiated “commitments” and a less-than-attentive Legislature did not intervene.

When Delta took over, that agreement was reduced to 10,000 jobs. Delta now plans on paying back the whole loan, which stands at about $163 million, freeing it from the previous job obligations.

However, the MAC still has another commitment in place with Delta that involves Minnesota jobs. A lease agreement requires Delta to maintain an average of 360 daily departures; at least 250 must be on flights with more than 70 seats in order to receive a share of airport revenues from concessions and terminal access fees. Many of the 250 “regional” departures are now operated independently by Pinnacle Airlines a former Delta subsidiary, and other regional partners. The Pinnacle payroll and its MSP operations have a lesser economic impact than Northwest’s regional operations in 2008 before the merger.

Still, there is a clause in this deal that could allow Delta to reduce its Minnesota capacity. If something happens outside Delta’s control, it could reduce the daily flights proportionally as part of a system-wide cut-back.

As Delta whittles away its Minnesota jobs and passenger capacity, any commitment to its Minneapolis-St. Paul hub is belied. Rep. Kline accused Delta of backing away from an agreement with Minnesota. The former Northwest headquarters in Kline’s district (Eagan) has been on the market for two years now and the simulator building could also be sold.

The question now is: Why is Minnesota still planning on Delta as the main service provider at MSP? How can that guarantee sufficient air service for state economic growth?

The 12-year trend at MSP has been fewer jobs, lower wages, less service, reduced local purchases and higher fares. The $3 billion spent to expand MSP and the $2 billion more planned for further expansion [2010-2030]. Delta benefits just as much as ever from these capital improvements of facilities used for connecting passenger service.

We can no longer be beholden to a major air service provider. MAC must continue working to grow opportunities for other carriers to expand at not only MSP but the state’s smaller regional airports.

Photo credit: Konstantin von Wedelstaedt, wiki commons

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