Delta Air Lines to Pay Outstanding Balance of 1992 MAC Loan
Loan Solidified MSP Hub at Key Moment in History
MINNEAPOLIS-ST. PAUL—Delta Air Lines says tomorrow it will carry through on plans it announced earlier this year to settle its remaining bond debt stemming from a 1992 Metropolitan Airports Commission (MAC) loan.
The airline will transfer $175 million to an escrow account for payment to holders of General Obligation Series 15 bonds. That cash, together with $52 million already held in escrow as part of the bond agreement, entirely satisfies Delta’s obligation to bondholders.
The MAC loan was part of a larger $761 million public financing package for Northwest Airlines approved by the Minnesota Legislature in December 2001. Intended to spur growth of Northwest Airlines operations in Minnesota, the financing also helped the airline avoid bankruptcy during a financial crisis in late 1992 and early 1993.
“Over the years the public financing package for Northwest Airlines has had its share of detractors, but there can be little doubt this agreement was beneficial both to the airline and to the people and businesses of Minnesota,” said MAC Executive Director Jeff Hamiel. “Without the 1992 loan, Northwest Airlines might not have survived that year. With it, Northwest grew Minneapolis-St Paul International into a major U.S. hub. As a result, people in the Minneapolis-St. Paul metropolitan area enjoy more air service per capita than do people in almost any other U.S. city. Today, MSP is the second busiest hub in the Delta system, injecting billions of dollars into the Minnesota economy every year.”
Hamiel noted that Northwest Airlines never missed a loan payment throughout its 2006 and 2007 bankruptcy proceedings or during its acquisition by Delta Air Lines. “The loan will now be paid in full at no cost to taxpayers or to the Metropolitan Airports Commission. In fact, bondholders have earned more than $375 million dollars in interest from the financing deal, so it really has been positive in every respect,” Hamiel said.
Total passenger levels at MSP have grown 40 percent since the loan was made: from about 23 million in 1992 to nearly 33 million in 2010, due largely to the growth of Northwest in the Twin Cities.
The loan agreement included language that obligated first Northwest and subsequently Delta Air Lines to employ certain numbers of people in Minnesota and to meet a minimum threshold of departing flights (currently 360, of which at least 250 must be on aircraft with at least 70 seats). While the flight threshold language also was incorporated into Delta’s operating lease at MSP and continues through 2020, repayment of the G.O. 15 bonds frees Delta of any employment obligations in Minnesota. However, the airline continues to employ significantly more people than the 10,000-worker minimum required in Delta’s loan agreement.
“A strong hub is arguably the best guarantor of jobs any airport can have, and Delta’s leaders have reiterated their ongoing commitment to that airline’s hub at Minneapolis-St. Paul International Airport,” Hamiel said. “Any financial risk owing to the bond debt is now gone, but the successful hub operation remains, providing air service and jobs throughout the region.”
The $175 million payment by Delta plus the $52 million previously held in escrow all will go toward paying bondholders and related fees.
In 2010, Delta and its regional affiliates flew more than 319,000 flights, carrying nearly 25 million people to and from MSP International Airport.