Page 4 of 6
"They were flat-ass broke."
That's how Charlie Berg remembers Northwest Airlines' financial condition in 1991, when the company asked the state of Minnesota for $1 billion in loans and financial assistance. The financing package had to be approved by the Minnesota Legislature, where Berg has served in the state Senate for 21 years. A lifelong cattle trader, Berg concedes he never liked Checchi. As he watched Northwest squeeze the state for money, Berg took to calling Checchi and Wilson "muggers in Gucci shoes."
Although he opposed it, Berg says, when push came to shove the state's elected officials felt they had little choice but to lend Northwest money. The airline is the state's second largest employer, and an economic mainstay on which hundreds of other, smaller companies depend for survival.
But Berg and others say a bitter taste still lingers from the pressure Northwest put on Minnesota lawmakers to cough up some cash.
The saga ostensibly began when Northwest was trying to decide where to build two new facilities -- a maintenance base and an engine repair shop -- to service its Airbus planes.
Minnesota officials, naturally, wanted the facilities in their state. Between them, the two plants were expected to create about 2,000 high-paying jobs.
Cities in Tennessee, Louisiana, and Indiana, among other states, were also vying for the projects, and Northwest found itself with a carrot to dangle before eager elected officials.
"We had expressions of interest from 40 municipalities, and about 20 had actually submitted preliminary structures of the deal," Checchi says. "Some municipalities were offering free land, some were offering existing facilities, some were offering tax abatements. It was a classic case where you were going to be building something that was very attractive from an economic development standpoint."
To this day, Checchi contends that Northwest was not looking for a handout. So many cities were offering to help finance the new facilities, he says, that Minnesota had to match the other offers if it wanted to stay in the race. Northwest wasn't ask-ing for a bailout, he says, just a "development package."
Checchi's recollection differs substantially from the memories of others involved in putting the deal together, both opponents and supporters. They recall that Northwest was demanding cash -- lots of it -- in exchange for building the new plants in its home state.
"It wasn't characterized as a bailout by any means. It was characterized as a siting decision," says Gene Merriam, a former Minnesota state senator who at the time chaired the Senate's Finance Committee. "[But] it became real apparent in a hurry to me that the facility discussion was a ploy to get cash for the company. And it worked beautifully."
Initially, Merriam and others involved in putting the deal together say Northwest asked the state for $1 billion in loans and other assistance. That came to a whopping $500,000 for each job the airline said it would create in return.
Peter Gillette, the state's former commissioner of trade and economic development, negotiated with Northwest on behalf of Gov. Arne Carlson.
Gillette -- an avid supporter of the deal -- recalls that Checchi and Wilson wanted "to raise a billion dollars from a variety of entities in the state of Minnesota." Among other things, Gillette says, Northwest wanted to borrow more than $200 million from the state's pension fund, a proposal that was quickly abandoned when retired state employees roared in protest.
The airline also sought to borrow money from the Metropolitan Airport Commission, which runs the airport in Minneapolis-St. Paul. And it wanted Duluth and Hibbing -- the towns where the facilities would be built -- to chip in cash as well.
Some of the money was to be used for building the new facilities, Berg says, but the rest was cash that Northwest planned to use to keep the airline running.
The financial aid package swiftly spawned an intense political debate that consumed the attention of the state's movers and shakers. Some business leaders opposed the deal, and took out advertisements in the state's largest newspapers expressing their feelings. The ads featured a picture of a menacing wolf with dollar bills clenched in its bared teeth, and took a direct shot at Checchi. "The wolf is at your door," the ads read. "And his name is Al."
Northwest responded by pouring hundreds of thousands of dollars into a sophisticated advertising and lobbying campaign, and by urging its unionized workers to flood the Legislature with phone calls supporting the deal.
Underlying the debate was the disturbing prospect that Northwest would move its corporate headquarters, its airline hub, and about 18,000 jobs out of Minnesota if aid wasn't forthcoming. Checchi adamantly denies that the company ever threatened to leave the state. "No," he says. "Everybody acknowledges that that never happened."
But not everybody acknowledges that. Gillette, who was sitting at the negotiating table for the state, says "they were tough businessmen. There was every reason to suspect and anticipate that the headquarters and the hub would be moved away from here."
Berg recalls that the airline "threatened to move their corporate office," but says he didn't take the possibility seriously. "I made the argument that these people haven't got enough money to get out of town," Berg says.
Ultimately, the aid package had to pass muster with the state Senate's Finance Committee, which was chaired by Merriam. A certified public accountant and former bank director, Merriam insisted on seeing Northwest's books before he would consider the package. Northwest, still a privately held company at the time, agreed to give him a peek at its financial statements.
"They were eye-popping," Merriam says. "The company was in serious financial trouble, and what they were looking for was a way to bail them out of financial problems. You see this huge enterprise, and you look at their balance sheet, and it was negative net worth. Of course, it was a leveraged buyout, and the company had taken on all this debt. It was a real bootstrap operation."
Showing 1-1 of 1
