Checchi's Checkered Record

Megamillionaire Al Checchi thinks he piloted Northwest Airlines so well that you should elect him governor. Actually, he sucked in public subsidies, strong-armed unions, reneged on promises -- and still almost flew the firm into the ground.

But those steps couldn't keep up with Northwest's declining revenue. The airline lost $302 million in 1990 and another $320 million in 1991. Checchi and partners had turned Northwest around, all right, but they were flying the wrong way. An airline that had never before lost money was sinking in debt.

Checchi lays full blame for the financial hemorrhaging on forces beyond Northwest's control. "In modern American history -- the 20th century -- there has never been an industry that had a decline as precipitous as the U.S. airline industry," Checchi says. "There was an 18-month period where [the industry] lost everything that it had earned since the Wright brothers."

Financially healthy airlines took advantage of the chaos, shopping for bargains on equipment, routes, and gates amid the industry wreckage. But the dramatic downturn was particularly unwelcome at an airline carrying $3.2 billion in debt. If Northwest had been cash-rich and debt-free -- as it was before the takeover -- it would have been able to snap up some bargains itself during the industry downturn. The post-Checchi airline, however, was struggling just to stay alive.

"Stronger competitors such as American, United and Delta were able to scoop up prized assets at bargain-basement prices," says a Harvard Business School case study of Northwest Airlines. "Northwest also pursued some of these opportunities, but its deteriorating financial condition placed it at a disadvantage in most bidding situations."

Northwest had hoped to raise more cash by selling aircraft and leasing them back, or by trading in the options it held on future delivery of new planes. But buyers for planes became scarce after the industry cratered, and Northwest was unable to generate additional cash from its fleet.

The company needed a new pool of money to tap. It wound up turning to the state of Minnesota.

"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.

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