August 7, 2008
Sun Country Wants State’s Help — but How Much?
By Christopher Snowbeck, Pioneer Press, St. Paul, Minn.
Aug. 7--Mendota Heights-based Sun Country Airlines started making its pitch Wednesday for financial help from the Metropolitan Airports Commission, saying consumers are saving an estimated $300 million this year by virtue of the competitive check on prices the airline provides.Stan Gadek, the company's chief executive officer, told a MAC committee Wednesday that sky-high oil prices mean Sun Country needs financial help to maintain regularly scheduled flights from the Twin Cities. The commission operates Minneapolis-St. Paul International Airport, where Sun Country ranks a distant second behind Northwest Airlines in its share of operations.
Help from the commission would allow Sun Country to get through 24 months of rough flying before the airline industry stabilizes, Gadek said during a meeting at the airport. At that point, he said, Sun Country would be able to finance growth by turning to the capital markets.
But Sun Country officials didn't put a precise dollar figure on how much help the company needs, nor did they submit a concrete proposal for how the MAC might structure such assistance. In June, Gadek put the figure at "upwards of $50 million," but told reporters after the committee meeting Wednesday it was "hard to say" if that figure stands.
Back in June, oil prices were shooting up toward a record high that reached $147.27 per barrel July 11. But oil prices have retreated in recent weeks, closing at $118.58 per barrel Wednesday.
"What's the price of
oil going to be?" Gadek asked. "That's anyone's guess right now. The important thing is that we sit down and begin a dialogue to explore different avenues of how we can obtain some help here."
At least two commission members voiced concerns during the meeting about the concept of the MAC helping the airline.
Jack Lanners, the commission chair, noted the MAC itself is dealing with financial uncertainties as the airline industry struggles, and its largest tenant -- Eagan-based Northwest Airlines -- moves toward being acquired by Atlanta-based Delta Air Lines. What's more, Lanners questioned Sun Country's projection of industry stability in 24 months.
In 2007, Northwest was the largest airline at Minneapolis-St. Paul, operating just under 200,000 landings and takeoffs, which amounted to 75.3 percent of all operations. Sun Country ranked second, but with just 14,285 takeoffs and landings, or 5.4 percent of operations.
Commissioner Mike Landy said Sun Country might be able to help itself financially by further boosting fares, considering the airline's track record for customer service and low prices.
"I'm thinking you might be leaving some money on the table," Landy said. "I'm seeing a lot of folks getting onto (other) airlines for a lot more money."
Jay Salmen, president of Sun Country's parent company, Petters Group Worldwide, said the carrier's ability to increase fares is limited by its reliance on leisure travelers who already are struggling to afford the more than 9 percent average fare increases Sun Country is instituting this year.
MAC assistance for an airline wouldn't be unprecedented.
In the early 1990s, the commission loaned Northwest $270 million as part of a bailout package. Northwest has since fallen below employment targets that were part of the deal.
Last year, the MAC agreed to a $239 million financial aid package for Northwest that reduces certain fees and gives the carrier a cut of airport concession revenue through 2020. The deal included a $40 million break for other airlines operating at the airport, including an estimated $6 million to $7 million for Sun Country. And in 2004, the MAC guaranteed a loan for a Sun Country hangar at the airport.
Still, the commission must be careful to mind federal regulations in its dealing with airlines, said MAC spokesman Patrick Hogan.
"Airports get grants from the federal government that are to be used for infrastructure, so they don't want to see airports then turn around and give money to the airlines to essentially buy air service," Hogan said.
Petters Group, a Minnetonka firm led by Tom Petters, has loaned Sun Country $25 million since the fourth quarter of 2007 to maintain the airline's liquidity, said Gadek.
Sun Country could break even if it discontinued scheduled service from the airport, Gadek said, and instead focused on military charters and other revenue sources. But he said that doesn't fit with Petters' vision for building Sun Country into a new network/hub airline headquartered in the Twin Cities.
If Sun Country discontinued scheduled service here, other low-cost carriers might enter the market to fill the void, Gadek said. But those airlines wouldn't grow local jobs and the regional economy, he said, as Sun Country could.
Christopher Snowbeck can be reached at 651-228-5479.
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