DELTA-NORTHWEST MERGER

In Twin Cities, a loss of jobs and status


The Atlanta Journal-Constitution
Published on: 04/20/08

Minneapolis — Here's a blurb from the city's latest PR campaign: "Denver has more days below zero than Minneapolis."

Catchy, eh? Stung by a 2007 national survey that portrayed the Twin Cities as "small, dull, white-bread, stoic and cold," this perennially upbeat and progressive region put up $2.5 million to combat the somewhat inaccurate portrayal. Minnesotans' collective psyche, though, took another blow when hometown favorite Northwest Airlines — a local fixture since 1926 — announced a merger with Atlanta-based Delta Air Lines.

Andy King/AP
At a news conference Monday, Jack Lanners (right), chairman of the Metropolitan Airports Commission, and Minnesota Gov. Tim Pawlenty address the merger of Northwest and Delta.
 
John Spink/AJC
The merger of Northwest and Delta will create the world's largest passenger air carrier. It will be based in Atlanta, home of Hartsfield-Jackson International Airport. In Minneapolis, corporate home of Northwest, officials fear the potential economic losses.
 
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Gone will be the name Northwest and the Fortune 500 headquarters in Eagan, about 15 miles south of the downtown Minneapolis spot where bubbly Mary Tyler Moore threw her tam o'shanter into the air. About 1,000 white-collar jobs could also disappear. But Minnesota will retain, for now, a hub, call center and thousands of mechanic, flight attendant and pilot jobs.

Northwest's future, though, gives pause to many people wary of an absentee, primarily nonunion corporate owner located in the Deep South. Northwest's history of assurances made, and broken, fuels the anxiety.

In exchange for hundreds of millions of dollars of state aid, Northwest vowed to build an engine facility, maintain three hangars, hire thousands of workers, and keep the hub and headquarters in Minnesota. Most plans fell short or never materialized. Since 1992, more than 6,500 Northwest workers have lost their jobs.

"The trust factor isn't very large, especially when you get to the Legislature," said Jack Lanners, chairman of the Metropolitan Airports Commission. "Certainly, we're looking to obtain what's best for Minnesota and the Twin Cities. We need to keep that in mind and not just trust in broken promises."

Northwest executives last week said they'd honor financial agreements with the airport authority and the state. Gov. Tim Pawlenty, though, said he'd consider reworking the bond and loan deals with a newly merged airline.

The Northwest saga strikes a more discordant note than just the loss of jobs and corporate prestige. For years, Minnesotans have taken pride in their state's robust economy and enviable standard of living. Lately, though, Minnesota resembles the rest of the country.

A bridge over the Mississippi River collapsed last summer, killing 13 people. Minneapolis' air quality dances in and out of dangerous territory.

The city's property tax base shrank over the past year for the first time since the mid-1990s. Minnesota recently suffered the worst six-month stretch of job losses since the recession of 2001, according to the state's economic development office. And the state's economist declared that Minnesota was "losing ground" to other states.

"I don't want to use the term 'smugness,' but we were so comfortable with being ranked near the top in just about every category — education, jobs, economic growth — that recent slips in any of those areas represent a critical wake-up call to get things back on track," said Todd Klingel, president of the Minneapolis Regional Chamber of Commerce.

'Merger will affect us'

Northwest executives last week downplayed any merger-related economic woe that might befall Minnesota or the airline's 11,500 statewide employees. They said Delta will maintain a hub in the Twin Cities where Northwest and its regional carriers control 80 percent of air traffic.

The swallowing of the nation's fifth-largest airline shouldn't unduly harm Northwest's $12.8 billion annual economic impact on the region, they added. CEO Doug Steenland said "meaningful" and "significant" numbers of Northwest's corporate employees will keep their jobs.

But Mike Campbell, Delta's executive vice president of human resources, said "there may be some involuntary furloughs on the management and the administrative side." More than 1,000 people work at Northwest headquarters in Eagan.

"Pulling a thousand jobs out of Eagan is going to affect the retail marketplace," anticipated Joe Dwyer, who owns a printing shop in the sprawling community south of the airport. "We do business with a lot of businesses — restaurants, companies that service aircraft — who depend on Northwest, so the merger will affect us. It's also going to take a bad housing market and make it worse."

Customers and employees at Nye's Polonaise Room, the 1940s-era polka bar and restaurant across the river from downtown Minneapolis, listed a litany of potential drawbacks to a super-sized airline no longer calling the Twin Cities home.

"Northwest — that's what I fly and I've always flown," said Michelle Ramsey, who helps manage the intentionally dark Nye's, with its mix of Naughahyde booths, red-velvet wallpaper and portraits of long-deceased Polish generals. "The availability of flights — would I still be able to cherry-pick flights — is the first thing that worries me. I worry about fares next."

Northwest receives top marks for community work from Lauren Segal, president of Greater Twin Cities United Way. The airline, one of the region's top donors, and its employees contributed $1.3 million last year to the nonprofit. Northwest employees also gathered 4,000 pounds of food, built furniture, sorted clothes and volunteered in myriad other ways for local United Way clients in 2007.

"Even during tough times, their support for us has not wavered at all," Segal said.

The loss of a headquarters and many well-paid employees portends a charitable drop-off, though. While Steenland sits on the United Way board, and Delta CEO Richard Anderson, an ex-Northwest CEO, once did, there's no guarantee the million-dollar-a-year donations will continue.

"If all the corporate executives go away it will have some impact," Segal said. "We're really trying to be optimistic. This is a really challenging time for both the airlines and communities, and what we're trying to do is take a wait-and-see attitude."

Another corporate blow

The Twin Cities area has withstood a number of corporate blows in recent years, just like Atlanta and other vibrant cities. But Northwest's departure, in the midst of a recession, compounds the corporate queasiness.

Wilsons, a leather-goods chain based here, recently announced that 160 stores nationwide will close and 1,000 employees will be let go. Department store giant Macy's will shutter its divisional headquarters at the famed Nicollet Mall in downtown Minneapolis. Another thousand jobs will disappear.

"The economy is not going to lighten up anytime soon," said Bill Hochmuth, senior research analyst for Thrivent Asset Management, an insurance company in downtown Minneapolis. "So the merger makes the local governments take a greater interest to make sure jobs are taken care of [and] the local economy is not overly affected."

Local officials believe they hold leverage over the merged airline. Northwest owes the airport commission $245 million for bonds issued on the airline's behalf. Northwest also stands to lose an additional $200 million in lower rent and airport concession revenues if the hub or the headquarters leaves.

"If the headquarters moves, the $245 million becomes due and payable," said Lanners, the airport commission chairman. "That's not chump change, even for a $10[billion]-20 billion merged entity. That agreement will get us to the table and define the parameters of exactly what's going to happen."

Minnesota bailed out Northwest in 1992 with $761 million in loans and incentives. The airline promised, in return, to build an engine maintenance facility in Hibbing (minimum 500 new jobs) and to maintain three hangars in Duluth (1,000-plus proposed jobs). Northwest also promised to keep intact its 18,000-member Minnesota work force.

Two years later the deal was renegotiated. The Hibbing plant was canceled. The Duluth site was closed in 2005 during a mechanics strike.

Northwest entered bankruptcy that year. In all, the airline has lost $7.5 billion since 2001. Jobs have been cut 20 percent with remaining workers taking pay cuts between 11.5 percent and 35 percent.

"We're very concerned about operations centers, call centers, maintenance centers, leases on various facilities and, of course, headquarters jobs," Lanners said. "Mergers and cost-cutting — we've been there, done that. That's not a long-term solution for survival."

Civic boosterism

No community escapes unscathed the loss of jobs and prestige bestowed by a Fortune 500 headquarters. The disappearance of an airline headquarters — doubly important when recruiting new businesses to the region — is especially nettlesome.

Yet some of those "stoic and cold" Minnesotans profess not to be worried. On a per capita basis, civic boosters note, Minnesota is home to more Fortune 500 companies than any other state. Target, U.S. Bancorp, General Mills, Medtronic, 3M, The Travelers Cos. — a Who's Who of corporate America.

Then why the PR campaign to put the Twin Cities on the radar of tourists and businesses? Half of respondents to the bureau's 2007 survey felt there was "no reason to visit" and that the region is "only about lakes, fishing, flannel shirts, etc."

Ouch.

Is Minnesota "losing ground?"

"I don't think so," said Jay Novak, a magazine publisher who heads the Twin Cities' convention and visitors bureau. "Minnesota will be a wonderful place to live, a great place to visit and a place where businesses, and the people working for them, will prosper long into the future — the potential loss of Northwest Airlines' headquarters notwithstanding."

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