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.

Only 312 people in the country are richer than Alfred A. Checchi. The rest of us are poorer, according to the latest score card of American wealth published by Forbes magazine, which estimates Checchi's worth at upward of $600 million, give or take a few million. The total depends on how the stock market is faring at any given moment.

Seated at a conference table -- in crisp shirt sleeves, his suit jacket neatly laid on a nearby chair -- the Beverly Hills businessman declines to pin down the figure more precisely. "I don't talk about how much wealth I have," Checchi says, dismissively.

But Checchi's wealth is really all there is to talk about. It is why he can, at age 49, run for governor of California as the latest multimillionaire vanity candidate offering himself for public service. Few people in the state know who Checchi is, and he lacks any discernible political credentials, other than contributing heavily to Democratic campaign coffers. But Checchi is betting that $30 million of his own money will buy enough political operatives and television time to overcome those handicaps by next year's election.

The bulk of Checchi's wealth consists of 11.4 million shares of stock in Northwest Airlines, a $5 billion company and the nation's fourth largest air carrier. Checchi owns more than 10 percent of the Minnesota-based airline, and stepped down as co-chairman of its board earlier this year to pursue his dreams of elective office.

When he announced his Democratic gubernatorial bid in late September, the state's major newspapers almost automatically anointed Checchi a contender. Lt. Gov. Gray Davis, the only other official Democratic candidate so far, is taking Checchi and his war chest seriously. A candidate willing to spend $30 million, give or take, cannot be ignored.

His ability to amass great fortune, in fact, is a major reason Checchi believes voters should take him seriously. He offers it as proof of his intellect and savvy, a testament to skills and judgment honed while scaling to the heights of prosperity.

So it seems odd that Checchi, seated at a conference table during an interview, appears put off by questions about exactly how he came to be so rich. He smooths his unruffled cuffs. His gray-green eyes cast about the room. He slaps the table with varying degrees of vigor.

"I guess the only thing that bothers me is that it's almost like deja vu. I have to relive this again?" he asks. "It's a little vexing."

The story Checchi prefers -- the one being spun out by his campaign staff and duly parroted in both San Francisco dailies -- casts Checchi as a financial prodigy, a masterful businessman who took over troubled Northwest Airlines and guided it to unprecedented profitability. It's a story business types call a "win-win": Checchi gets rich, the stockholders make money, and a company that was in dire straits lives on, winging passengers about the globe.

But that version glosses over some crucial elements of the tale. That Northwest didn't begin to founder, for instance, until after Checchi led a leveraged buyout of the airline, saddling it with more than $3 billion in debt. Or that the airline came within hours of bankruptcy in 1993, and was saved at the last minute only because its unions agreed to eat more than $800 million in salary and benefit cuts.

The sanitized version of the Checchi success story ignores the Minnesota legislators and business leaders who still complain that Northwest shook down their state for hundreds of millions in loans when the airline was going broke, and then reneged on its promises to create 2,000 jobs in return.

No wonder it is a painful period for Checchi to relive. During most of the time he had a direct hand in Northwest's affairs, the company careened from crisis to crisis, posting more than a billion dollars in losses and scrambling to remain solvent.

Critics argue that Northwest's survival was more a product of luck than wisdom, that Checchi and his business associates borrowed their way into trouble and kept on borrowing until the economy picked up enough to carry the airline back into the black. Along the way, critics say, Checchi and company cavalierly risked the survival of a venerable company and the jobs of its tens of thousands of employees. For Checchi to trumpet his business acumen, they say, is akin to a doctor bragging because a patient happened to survive repeated bleedings.

"If the state [of Minnesota] hadn't come up with money, Northwest probably would have declared bankruptcy, and somebody else would be running that company today," says Arthur Rolnick, director of research for the Federal Reserve Bank in Minneapolis.

Checchi counters that Northwest did survive, and is now profitable. He bristles at critics who question his stewardship of the company. "I think you find a lot of people that just resent somebody being financially successful," he says.

Checchi's own financial health, however, is one of the few things that he did not risk at Northwest. An adept financier, Checchi put less than $10 million of his cash into the $3 billion-plus takeover -- less than one-third of 1 percent of the purchase cost -- and recovered his money almost instantly. If the airline had tanked, Checchi and his buddies stood to lose little or none of their own investments. Other people put up the cash. Checchi provided the blue skies.

The takeover of Northwest Airlines that Al Checchi spearheaded in 1989 holds a modest place in history. It was the last of the big leveraged buyouts of the 1980s, a capstone for the free enterprise facade that hid the decade's construct of unbridled greed.

As takeovers went, the Northwest buyout was a kinder, gentler affair than many others. Checchi points out, correctly, that no junk bonds were used to finance the deal, and it did not trigger the massive layoffs or corporate cannibalization that befell other targets of highly leveraged purchases.

But it was not the "friendly takeover" Checchi now likes to recall.
Before Checchi and his associates arrived on the scene, Northwest was a profitable company holding true to its conservative Minnesota roots. Founded in 1926, the airline made money each year, expanded slowly, paid for its airplanes with cash, and took on debt grudgingly. "At the time, Northwest was doing just fine," says a former company executive who lost his job after the takeover. "They had lots of money in the bank."

The airline had some problems. It was struggling to overcome a reputation for poor service, and had a history of fractious labor disputes that prompted numerous strikes, including one that grounded Northwest's planes for 103 days.

Still, during the three years before Checchi arrived to save it, Northwest's revenues grew from $3.5 billion to $5.6 billion and it posted record profits -- $77 million in 1986, $103 million in 1987, and $135 million in 1988. Clearly, the airline was not in financial trouble.

In fact, it was the fat, slow-moving sort of prey that was bound to entice corporate predators. Although no two takeover targets are exactly the same, they share some general characteristics, and Northwest was a leverage artist's dream. By the very nature of its conservative management, the airline had little debt and plentiful assets.

In 1989, no one was in a better position to know just how prime Northwest was for the taking than Gary Wilson, Checchi's business mentor and longtime friend.

The two had met in the 1960s when Checchi was still a student and Wilson was working for a Washington, D.C., consulting firm run by Checchi's uncle. The two men became friends. By the time Checchi earned an M.B.A. from Harvard Business School, Wilson had moved on to the Marriott Corp., where he was making a name for himself as a wily financial operative.

Wilson is credited with masterminding Marriott's use of debt to rapidly expand its hotel business. Wilson's strategy was to turn the company's assets into cash. Marriott sold hotels it already owned, then leased them back and made money by continuing to manage them. New hotel construction was financed by selling limited partnerships to investors. Wilson hired Checchi on at Marriott to help with the plan. (Not long after the two men departed, Marriott's debt load caught up with it, and the company's fortunes declined precipitously.)

Their careers and fortunes have been intertwined ever since. Checchi left Marriott to work for the Bass brothers of Texas, secretive multimillionaires with business and real estate holdings across the country. After Checchi helped the Basses score a 25 percent stake in the Walt Disney Co., Wilson ended up as Disney's chief financial officer. Checchi and Wilson each banked about $50 million in stock profits from the Disney deal, according to published reports from the time.

Checchi left the Basses and moved to a mansion in Beverly Hills once owned by Sidney Poitier. He set up his own company and began casting about for the next op-portunity. In 1989, Wilson brought it to his doorstep.

"[Wilson] had been on the board of Northwest Airlines, and his feeling was that the board had lost confidence in the management's ability to deal with the forces of change in the industry, and that they would be responsive to a friendly approach to acquire the company," Checchi says.

Put another way, Wilson knew Northwest's finances, assets, and management, and he recognized that the airline's stock was worth more than it was trading for on the market. Checchi says Wilson told him, for instance, that Northwest was holding some valuable real estate in Tokyo, a handy source of potential cash that was going untapped. The company's stock price also did not reflect the potentially lucrative options it held for new airplanes. New planes were in great demand at the time, and options to buy one could be sold or traded for a profit.

According to a former Northwest executive who was fired after the takeover, the intimate knowledge of Northwest's finances Wilson gained while on the board helped Checchi and Wilson see a chance to turn a quick profit by making a play for the company. At best, they would succeed and own an airline. At worst, they would buy a bunch of stock, run up the price with their takeover bid, then sell and take the profits.

Wilson and Checchi began secretly buying up Northwest stock, joined by another well-connected business friend -- Fred Malek. (Malek ran President George Bush's re-election campaign in 1992.) The partners bought up 4.9 percent of Northwest's shares using a company they created for that purpose called Wings Holdings. As required by securities laws, Wings ultimately disclosed that it was acquiring a hefty chunk of Northwest.

Checchi says he can't even remember now exactly how much of his own money he put into the initial stock purchases, but concedes it wasn't very much for a deal of such magnitude. "By the time we bought the company, we had somewhere between $8 and $10 million apiece in it, which is small relative to what we earned, if that's your question," he says. "The objective was not to have a lot of money at risk." That would be all the money Checchi put up on the way to closing a $3.65 billion deal. He earned most of it back immediately from the rise in Northwest's stock price during the takeover.

Once their intentions were publicly revealed, Checchi's group approached Northwest's board of directors with a "friendly" offer to buy the whole company. Twice, the advances were rebuffed, and Northwest's board of directors adopted various poison pill measures in an effort to stave off the unwanted suitors.

But other, less appealing takeover artists soon joined the hunt, and it became apparent that Northwest was going to be sold to somebody. Checchi's group seemed the lesser of the evils, recalls the former company executive. Northwest's directors decided to sell.

"Instead of going into a defensive mode, the board of directors made a decision to maximize shareholder value," the former executive says.

The way Checchi tells the story now, you'd think the people of Minneapolis turned out to strew rose petals in his path when the deal was announced. "When we first presented ourselves, in the eyes of the public we were greeted as saviors of the company, as white knights," Checchi says.

But Peter Gillette, a former member of the Minnesota governor's Cabinet, recalls an undercurrent of distrust among the state's business leaders.

"We're very Midwestern and very populist," Gillette says. "In the main, the notion of leverage and leveraged buyouts was anathema to most of the business community. These two men were not of local ilk. They came out of a fast-moving crowd that was reprehensible to many at the time. There was a lot of gnashing of teeth on the part of the broader business leadership."

As the deal was finally negotiated, Checchi's group agreed to pay $3.65 billion -- or $121 a share -- to buy Northwest. Less than a billion of that was actually put up in cash, most of which came from investors other than Checchi, Wilson, or Malek.

KLM Royal Dutch Airlines kicked in $400 million in return for about 20 percent of Northwest's stock. Another $80 million came from Elders IXL, the largest company in Australia, which owns, among many other things, Fosters Brewing.

Yet another $100 million was brought into the deal by San Francisco investment banker Richard Blum, husband of U.S. Sen. Dianne Feinstein. An investment company headed by Blum still owns about 5 percent of Northwest, which could prove touchy if Feinstein decides to enter the Democratic gubernatorial race herself. Political handicappers predict she will, although Feinstein has offered little insight into her plans.

(Checchi says he and Blum remain friendly, and still see each other at Northwest board meetings. Checchi says he sat down with Blum before announcing his candidacy and told Blum he was planning to run. "He said, 'It's a free country,' " Checchi recalls. Blum, for his part, won't discuss Checchi's candidacy. "Mr. Blum says he will not be talking to the press about Mr. Checchi," a secretary told SF Weekly.)

Altogether, Checchi and the other investors came up with about $700 million in cash to buy the airline. The remaining $2.9 billion had to be borrowed, and more than 100 banks kicked into the loan package. With various transaction fees added on, Northwest wound up with about $3.2 billion in debt when its new owners took over in early August 1989.

Paying that money back would be quite painful for the airline.

Trouble was not slow in coming for Al Checchi and the new owners of Northwest. Airlines are a particularly fickle business, and the early 1990s were brutal for the entire industry.

Iraq invaded Kuwait, the Gulf War ensued, and jet fuel prices soared. The United States and Japan both suffered recessions, fears of terrorism prompted numerous warnings about air travel, and many customers -- including high-paying business travelers -- cut back on flying.

"This was a very grim period for everybody associated with the airline industry," Checchi says. In 1991 alone, six major U.S. airlines filed for bankruptcy, and only three proved able to fight their way back out.

Just as those problems were starting to subside, American Airlines launched a vicious round of fare cutting in 1992, forcing other airlines to match its bargains. The price war caught some airlines in a cruel trap -- they were scrambling to attract passengers, but losing money on many of the tickets they sold.

Almost immediately after buying Northwest, Checchi and Wilson began looking for money to pay back the banks. The company sold planes for cash, then leased them back. Northwest wrangled millions of dollars in loans out of two major suppliers -- Airbus and GE, which makes the engines for Airbus planes. The real estate in Tokyo was mortgaged for about $380 million.

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.

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.

The deal was approved, and Minnesota's elected officials waited for Northwest to build the two new facilities and create those 2,000 high-paying jobs.

They're still waiting.

The Iron Range of northeastern Minnesota is a cold and lonely place. Unemployment runs almost double the state average, a reflection of the falling fortunes of the taconite mines that gave the region its name. The small town of Hibbing dearly wanted the payroll that Northwest's engine repair facility would bring. The town never got it.

Farther south, the city of Duluth was also eager for the 800-plus jobs that would accompany a new Northwest maintenance plant. That city, at least, has gotten part of what was promised.

Shortly after Northwest won approval of the state aid package, it promptly took $315 million from the Metropolitan Airport Commission to prop up its ailing bottom line. But the airline's finances continued to plummet, and it had to cancel orders for some of the new Airbus planes it had planned to purchase.

Northwest determined it didn't need the two new facilities that been the stated rationale for seeking money from the state in the first place.

The size of the state aid package was scaled down as Northwest retreated from its plans. Ultimately, Checchi says, the company only received about $365 million from the state, the vast majority in the form of loans that went for operating expenses.

And for a long time, nothing was built in Duluth or on the Iron Range.
Years later, Northwest did place a telephone reservations center in Chisholm, a small town near Hibbing. A local development agency -- the Iron Range Resources and Rehabilitation Board -- lent the company $9.7 million to build the reservations center, which handles toll-free calls from the airline's frequent flyers. If the center employs 604 full-time workers by the year 2008, the loans will all be forgiven. The most recent report Northwest submitted to the Rehab Board showed 208 employees at the center, says Jean Dolensek, an economic development representative at the development agency. The telephone operators, though, do not make nearly the wages that were to have been paid skilled workers at the engine repair plant that was never built in Hibbing.

A scaled-down version of an Airbus maintenance base was finally built in Duluth. The city gave Northwest $21 million to build the plant, and the state lent the airline $29 million more.

Welcome though they might be, the two facilities don't approach the 2,000 high-paying jobs Northwest dangled before Minnesota lawmakers when the company was seeking help.

"They created about half the jobs they promised, and not nearly the high-paying jobs they promised," says Berg. "They reneged on the biggest part of the agreement."

Checchi counters that Northwest had to scale back its plans. Sometime over the next few years, he says, the airline might still build the engine repair plant it promised -- and expand the Duluth maintenance base. "The irony of this is that we will end up building facilities as large as we originally intended," he says. "It's just going to take a little bit longer, and we will build those substantially with our own funds."

The facilities couldn't be built right away, Checchi says, because in 1992 Northwest plunged into even more desperate straits.

As the state's financial aid package was being finalized, Northwest and the rest of the airline industry were hit by another shock. American Airlines embarked on a round of fare cuts it called Value Pricing, and drove down ticket prices across the land.

The fare wars brutalized Northwest's already bloody bottom line, exacting an even heavier toll than the Gulf War, rising fuel prices, and recessions had a year before, Checchi says.

"We had started to see a real turnaround in the early part of 1992," Checchi says. But when American started cutting fares, "that produced a breathtaking drop in yield for the industry that was instantaneous."

For Northwest, the fare war was more bad news piled onto an already shaky company. In order to survive, Northwest determined that it would have to win major concessions from its 38,000 employees, including the three big unions -- the Airline Pilots Association, the International Association of Machinists, and the Teamsters.

In the spring of 1992, Northwest began talking pay cuts with its unions. At first labor leaders resisted, but it soon became clear that the talk wasn't just a management ploy -- Northwest was rapidly approaching bankruptcy.

Starting in late June, the company furloughed about 800 pilots, managers, reservation agents, and mechanics. The wolf was now at Northwest's door.

"In the fall of 1992, Northwest Airlines faced crises everywhere it looked," says the Harvard Business School case study of the airline. "The airline's cash position had dwindled to near zero ... as if this weren't bad enough, Northwest still owed $1.8 billion to the banks that had financed the 1989 buyout."

Ever since the takeover, Checchi's own company -- Checchi & Associates -- had been paid $10 million a year to provide management consulting advice to Northwest, but in late 1992 the situation was so grim that Checchi agreed to forgo those fees.

The airline again scrambled to borrow money, and negotiations with its unions over wage concessions continued into 1993. In January, the company laid off another 1,043 employees.

Northwest hired bankruptcy attorneys, and set July 6 as the date it would seek court protection if the unions would give no ground. The airline reportedly had attorneys and a public relations expert at the ready -- bivouacked at a hotel room in Delaware where the bankruptcy was to be filed -- as the deadline approached.

Just hours before the deadline, the unions gave in. At 3 a.m. on bankruptcy day, union leaders approved a package of pay cuts and work rule changes that would save Northwest $886 million over three years.

As the state of Minnesota had before them, Northwest's unions pulled the airline back from the brink.

"The employees saved this airline," says Rolnick.

The union givebacks staved off crisis, but it was the invisible hand of the marketplace that ultimately kept Northwest aloft.

As the economy improved after 1994, people started flying again. There were fewer major airlines left, and Northwest's ticket sales picked up. The airline is making money again.

Last year, Northwest's unions began getting back most of the concessions they made in 1993. The airline's stock has been trading at about $45 a share, and the company posted a healthy profit in 1996. Checchi's Northwest stock is worth upward of a half-billion dollars. Now he can afford to run for governor of California.

"They made a lot of money risking other people's money," says Merriam, the Minnesota state senator. "But I guess that makes them pretty shrewd."

If you look at Northwest Airlines now, Checchi says, you can see the wonder of what his takeover wrought. "We've accomplished a great transformation of a huge American company under very difficult circumstances that were made more difficult by a lot of local sniping," he says.

But as the conversation with Checchi approaches its conclusion, fundamental questions linger -- how does shuffling debt and risking other people's money make him a business wizard? Did Northwest survive because of crafty management or luck? What did Checchi even have on the line?

"I think I had my reputation on the line," he says. "I think I had responsibility for the success of this transaction which weighed enormously on me. In fact, all of us associated with this will never forget the experience. And I met all my responsibilities."

Northwest's years after the Checchi takeover are often likened to a gut-wrenching roller coaster ride. Certainly, it was a wild trip for the airline's employees, the state of Minnesota, and the lenders who kept shoveling money into Northwest. But Checchi? He was back at the ticket booth, smoothing his cuffs and counting the take.

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