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.

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."

Checchi, however, dismisses Berg and Berg's opinion. Proclamations that Northwest was in trouble and looking for a bailout, he says, were mere political rhetoric promulgated by opponents of the deal.

"Gene Merriam was opposed to the transaction, and what are his credentials for making a judgment?" Checchi asks. "All that guy did was perhaps look at a balance sheet and a [profit and loss statement] and render some cursory judgment of something he had already decided he was against anyways."

Politics, Checchi says, accounted for most of the criticism of the financial package. "In the course of negotiating the transaction you had all kinds of people throwing whatever roadblocks they wanted to against the transaction," Checchi says. "One of which was to call it a bailout, when it wasn't a bailout."

Arthur Rolnick, one opponent of the deal, didn't call it a bailout. He called it blackmail. Rolnick, research director for the Federal Reserve Bank in Minneapolis, opposes the common fad among state and local governments to hand over money to private businesses. As a simple matter of public policy, he believes, rich companies and businessmen should not be allowed to shake down governments for subsidies and tax breaks to build new plants, offices, or sports stadiums.

But Rolnick never took the debate as personally as Checchi seems to. "I'm not critical of Northwest for doing this," Rolnick says. "We have companies doing this all over the country. Large public companies are blackmailing states."

Despite fierce opposition, the political winds blew Northwest's way. The governor backed the deal, as did Minnesota Congressman Jim Oberstar, who wielded substantial clout as chairman of the House aviation subcommittee. It also didn't hurt that Minnesota native son and former Vice President Walter Mondale had a seat on Northwest's board of directors.

In early 1992, a legislative committee gave final approval to the aid package. It wasn't the $1 billion Northwest had asked for, but it was still a sweet deal.

The final "development package" provided $838 million of loans and assistance for Northwest. The Metropolitan Airport Commission agreed to loan the airline $315 million. Northwest put up its flight simulators, some jet engines, and other equipment as collateral for the loans, says Tom Anderson, the commission's general counsel.

The city of Duluth agreed to pitch in more than $20 million as an outright grant to the airline in exchange for the Airbus maintenance facility, says Karl Nollenberger, the city's chief administrative officer. The rest of the money was to come from other sources, including loans made with the proceeds of government bond sales.

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