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GARY EICHTEN: We have heard numerous stories over the last few weeks about Northwest Airlines. There's been the business of the unions and the bank loans and on and on and on. And so we thought it was be time to things out, catch up on just what exactly the current situation is with Northwest, and perhaps look into the future a bit and see if we can figure out where Northwest might be going in the next-- well, in the short run and in the long run as well.

Two people are with us today to help in that process-- Minnesota Congressman Jim Oberstar, who represents the northeastern part of Minnesota, where the maintenance base is that Northwest Airlines is to build-- where those bases would be located. Congressman Oberstar joins us by satellite from Washington.

And here in our studio is airline analyst Mike Hamilton of the Leuthold Group, who has become kind of a radio announcer on a regular basis here in Minnesota Public Radio pretty much on every day, bringing us up to date. The subject today is Northwest Airlines.

Well, Mike, let's start with you. Short term here, has Northwest weathered the storm? Are they going to be flying for at least the next year or so, what with the union concessions and the rest?

MIKE HAMILTON: I think that assuming the union concessions are finalized here and the likelihood of KLM following it on with an equity investment of some sort, definitely, you're looking at an airline that, barring a repeat of the fares we've seen this last summer, has bought itself a year.

GARY EICHTEN: Is there any doubt that the unions will, in fact, go along with this package?

MIKE HAMILTON: The unions have laid out what they are willing to do in terms of concessions. Obviously, we haven't yet seen public what they are going to require on the other side. The key will be, can all the parties come together on what the terms are of equity, as an example, on the part of labor tied into it? My suspicion is that they will. But it's one of those things that, until it's all signed off on, there is a risk.

GARY EICHTEN: OK. Longer term, what is the prospect for Northwest? I had heard that, even if they make their debt payment in the next year, it just gets bigger and bigger and bigger as time goes on, with no real prospect that their growth would be able to keep up.

MIKE HAMILTON: There's no doubt that the airline is suffering the malady of too much debt, that the LBO that was done back in '89 has saddled the company at a time when the economy, oil prices, following Kuwait, et cetera, nothing really accommodated. But the bottom line, once you get past the financial restructuring, is that you're dealing with an industry that is in turmoil and an industry where the, if you will, most strategically fit, are going to be the survivors.

There are definitely still some holes in the strategic positioning of Northwest, looking at a real long-term basis. And until we see those addressed-- and again, there, you're talking about something that's perhaps 5 in 10 years. You're looking at a carrier that has to be seen as, on the bubble, among the majors that are likely to survive to be into the next century.

GARY EICHTEN: What do we know about the investment of Al Checchi et. al? Do they actually have any of their money tied up in this?

MIKE HAMILTON: Probably not. I don't know that that's real alarming one way or another, though, perhaps in terms of some of the response that we've seen on requests for additional funding. But I think that that was pretty well all on the table at the time that this deal was done back in '89, that the gains that Al Checchi and Garrett Wilson had taken in the stock trading during the time predeal were basically enough to fund their portion of the equity investment in the airline.

GARY EICHTEN: Well, if the airline really does go under, will they lose money? Or is this purely something that--

MIKE HAMILTON: Oh, absolutely. There is 40 million of their money that is in there that they would lose. The other side of it, though, is that that money that they had made on the gains in the stock during the time, it was running up prior to the deal. So if you will, if you look at it purely from their entire dealings in Northwest, they've pretty well assured themselves that they will not be a loser.

But you'd also stress that-- these are the type of individuals that reputation and stature and ability to do this kind of deal well means a lot to them. So there is more on the line than purely the financial side. But it is a sticking point with many constituencies when they look at the fact that, in all likelihood, you will see a deal where, one way or another, if you will, that part of the ownership group has nothing at risk. Now, if you look at other constituencies, as is KLM, KLM is a substantial amount of capital at risk in this deal.

GARY EICHTEN: Uh-huh. Joining us from Washington is Eighth District Congressman Jim Oberstar. Good afternoon, Mr. Oberstar.

JIM OBERSTAR: Good afternoon.

GARY EICHTEN: What's your prognosis? Short term, Northwest will be fine, do you think, with the union concessions and the rest?

JIM OBERSTAR: Well, first, let me thank you for inviting me to join on this program and to also say what a pleasure it is to be with Mike Hamilton, who is, as you said, has become a regular. But he is a regular because he is so knowledgeable. And I respect his judgment and his contribution to this public debate over Northwest over quite a long period of time.

Yes, I think Mr. Hamilton's assessment that Northwest, with the agreements with the unions, has bought at least a year of time is right on. The question is, will the unions sign? I think the indication of what will happen on the union side is summed up in the fact that John Peterpaul, President of the International Association of Machinists, took control of the negotiating process, came out personally to preside over the talks that led to the letter of intent by the machinists union.

That means a $300-plus million contribution on their part over the next three years, which was the linchpin toward the more than $1 billion in concessions and productivity improvements that the unions have, in principle, agreed to is in itself an indicator that the details will be worked out, and that a contract will be signed, and that there will be stability, at least in the short run, for Northwest.

Otherwise, John Peterpaul himself would not have come out to take charge of the negotiations. So in the short term, I concur that there is a good prospect for Northwest.

The long term, to some extent, is within the hands of the managers of the carrier to determine and, to a larger extent, in the general fate of our national economy. If the economy recovers in the next year, certainly, all carriers are going to do well. And Northwest is certainly poised for growth and for productivity improvements and for eventual profitability.

GARY EICHTEN: Congressman?

JIM OBERSTAR: Yes.

GARY EICHTEN: I'm wondering, would you agree with former Governor Rudy Perpich, who apparently says that the state of Minnesota should be prepared to put more state money into this deal to keep Northwest flying?

JIM OBERSTAR: Well, that is a possibility. But I think further down the line-- right now, I don't think we should be talking about more state involvement or financing. I think what we need, first of all, is to get the union contract signed.

I think the next step when that is done that will give assurance to investors or lenders to provide additional credit to Northwest, there is the bank consortium led by Bankers Trust that is now reviewing the possibility of further cash advances and, of course, a very strong prospect of further involvement by KLM in additional loan money to Northwest. And I think those avenues have to be explored first.

I think that the state will rightly say, Metropolitan Airports Commission has put in $270 million. We're proposing additional $250 million in economic incentives to build the maintenance facilities. Let's see what the private sector thinks about the prospects of Northwest before we put more state money into it.

GARY EICHTEN: OK, Congressman Jim Oberstar from Northeastern Minnesota, speaking with us from Washington. Here in the studio, Mike Hamilton, who follows the airline industry very closely. He is with the Leuthold Group. Let's take a call from a listener. Hello.

CALLER: Hi. I'm just wondering. I have got a couple of kids that are working for Northwest Airlines, and they're both, of course, involved in the wage concessions. And they're pretty good about doing it. But I've heard that Al Checchi makes $10 million. And I'm wondering if there's any concession on his part? And secondly, what in the world could he be doing that's worth $10 million a year?

GARY EICHTEN: Which one of you wants to take a run at that? I think we touched briefly on Mr. Checchi. Congressman Oberstar?

JIM OBERSTAR: Yes.

GARY EICHTEN: Do you know what is Al Checchi sharing in the pain at Northwest?

JIM OBERSTAR: Well, I don't know specifically whether he's sharing in the pain. There has been some discussion about-- both he and Mr. Wilson yielding their consultant fee for the time being of these difficult financial times for Northwest. What other concession would be made? I'm simply not privy to.

But I will say that the details of the machinists' agreement with Northwest have yet to be worked out. And that will probably involve some request for equity, perhaps as much as a seat on the board, perhaps other concessions for the union to have a greater say in the future of this carrier in exchange for the concessions that they're making. The hope is, of course, that these concessions by all of the unions get Northwest in position to grow and for all of the union members to recoup what they have yielded in this short term.

I think they're taking the example of Eastern Air Line and Pan Am, where long disastrous negotiations resulted in the carrier folding, at least as part of the cause of its folding. And they don't want that to happen with Northwest.

GARY EICHTEN: OK. Let's take another caller. Hello. Your question please?

CALLER: Yes. I'd like to hear both Mr. Hamilton and Congressman Oberstar comment on Northwest's recent expenditures for coming up with a new logo and painting aircraft with new Northwest colors? Do they feel it's wise in light of the current economic turnabouts?

GARY EICHTEN: Mike, is this traditional in the airline industry? Does that cost so much that it really is a factor? Or is it kind of--

MIKE HAMILTON: Well, when you're looking at a period of time when cash flow is critical junctures, you can get into debates as to what is critical. I think the reality is, for a variety of reasons, one of the problems that Northwest faces in its domestic operation is that there's a decided preference among business travelers to fly on other carriers. And there's long-term history and reasons behind that.

And in a nutshell, it is a very difficult thing to correct. It takes time. You're working on image issues. And as we've seen, certainly was the case with the final days of Eastern was the case, to a large degree, with Continental. When your business travelers decide, for whatever reasons, that they don't like to fly you, you, as a major carrier, are in trouble.

GARY EICHTEN: Congressman Oberstar, do you get the sense that the Northwest management is, in fact, doing everything it can, cutting corners wherever it can, to save as much money as possible?

MIKE HAMILTON: Well, yes. I think with respect to the question of color and logo, unless there's something new that I'm not aware of, the logo change and the painting all were taking place before the acquisition by Mr. Checchi and Mr. Wilson. And they just simply continued that process. It is expensive to paint an aircraft. It takes over 60 gallons just to do a 727. And it adds weight, of course, to the aircraft.

I think any of those kinds of costs that can be avoided at this point must be avoided. Northwest went on a $100 million shopping spree to find ideas from its employees how to save money they saved, or they got ideas for $100 million in savings. I hope that holding off on painting of new aircraft, once they're in the air, it doesn't really make any difference what that aircraft looks like.

GARY EICHTEN: As long as it can get up--

JIM OBERSTAR: There is an image thing. And Northwest, long before the acquisition, had the image of a rather stodgy carrier that was mostly a long-haul carrier and didn't care about local markets. Northwest has tried to turn that around under the Checchi-Wilson regime. And bringing in Michael Levine as the director of marketing has certainly been a good move for the airline.

And there are many other productivity improvements and cost cutting. For example, at the Minneapolis-Saint Paul Airport, there are 2,200 Northwest employees, but only 22 of them are managers. I think that's a very good ratio. It's far better than what we know up north in the iron ore mining industry, where the managerial crowd is much larger than it ought to be.

GARY EICHTEN: OK. Let's take another call. Hello?

CALLER: Yeah. I've got a question. What I look at is the way Northwest built up the airline over the years, as I know it started about 1930s up to 1989 when it was taken over and what a good airline it was at that time. If you see any reason why the takeover with the financier Checchi-- and then I believe he hired a president of what's basically a food company to run the airline, if that's had an impact on the way that Northwest is having its current difficulties.

GARY EICHTEN: Mike?

MIKE HAMILTON: Well, you went through two or three presidents very quickly at the onset, which isn't unusual with an LBO when you go with a transition team. So I think that some of the changes that have taken place at the top, while they're frustrating and can make some delays on what you want to do strategically, I wouldn't put it as a real pivotal issue.

I think that, clearly, had we seen a policy that had really been in place as to where we wanted to go with the airline industry, there would have been severe reservations as to the type of financing that was done in '89 that structured Northwest for where we are today, because really, the seeds for the problems today were put into place then. And the difficulty we've got in all of the debate right now over foreign ownership and whether there's going to be a lifting of the percentage caps that there are difficult ones because the horse is out of the barn.

GARY EICHTEN: Congressman Oberstar, on that issue that the business of KLM's ownership of Northwest or growing presence at Northwest, is there, in fact, a danger that the folks in the Netherlands will be calling the shots for our airline here?

JIM OBERSTAR: I don't know, but they're certainly shopping for lots more blue paint. [LAUGHS] Seriously, I want to come to that point in a moment. The question was raised about the president. And I think that refers to John Dasburg.

MIKE HAMILTON: No, I think actually, Congressman, they're going even back prior to that in the transition.

JIM OBERSTAR: Oh, well, Mr. Dasburg did come from the Marriott organization where Mr. Checchi and Mr. Wilson sort of grew up, if you will, financially. And a great many of the top management people have come from the Marriott organization. And I think they brought with them a good sense of business management and cost-cutting and efficiency and productivity ideas.

But to come to Gary's question about the degree of ownership of KLM, any greater degree of ownership by KLM would require a change in US law. That would mean action by the Congress. And it would be my committee that would have to approve such a change in legislation. We're not ready to do that yet, although the setting is certainly what I have set forth as a precondition for any expansion of the ownership limitation.

Right now, federal law requires ownership of US carriers to be 75% US, no more than 25% foreign. There are a number of US carriers that have foreign investment. None approaches the 25%. But carriers are finding ways to do things differently.

The current pending proposal from British Air to invest in US Air would go significantly beyond the spirit of the law by giving British Air a very significant degree of control over the internal management of US Air, of its investment, of its route, development, and of its marketing. That kind of control does not exist at this point between KLM and Northwest, although KLM contributed 57% of the equity without getting voting stock or board positions in violation of US law.

Whether such expansion would be necessary would perhaps depend on future market and on how well the carrier fares. And when I said that the context is right, I've set forth the requirement at a minimum of liberal bilateral between the United States and the country, whose carrier would be interested in investing in a US carrier. We have such a format, such a framework, I should say, in place now between the US and the Netherlands in the most liberal bilateral the US has negotiated with any country.

GARY EICHTEN: OK. Let's take another caller. Hello.

CALLER: Hello.

GARY EICHTEN: Your question, please.

CALLER: My name is Bob Mueller. I live in Plymouth, Minnesota. I don't have a question so much as I have a comment which I'd like to make. And then I'll hang up, and the gentlemen can respond to it in any way they wish.

I know I speak for a great many people around the whole state of Minnesota when I say that it's, in my judgment, a misuse of state tax dollars to fund, in any way, any sort of a maintenance base for Northwest Airlines in Northeast Minnesota. Whatever the consequences might be of the state's decision not to do that in terms of disruption of Northwest service, jobs, et cetera, I think, is just a natural part of the ebb and flow of economic events.

And I just don't think the state tax dollars paid for by private citizens in the state ought to be used to help finance a facility for a privately owned enterprise. I'll hang up, and you can comment in any way you wish.

GARY EICHTEN: OK. Congressman, I think that falls into your bailiwick. What is the justification for what's more and more looking like a public bailout of Northwest Airlines?

JIM OBERSTAR: First of all, there were two parts of the package, the one that could properly, if that term were appropriate at this point, be called a bailout, would be the portion of the legislation that allowed for the Metropolitan Airports Commission to use some of its bonding authority to provide capital for Northwest Airlines in the amount of $270 million, which netted out to something less than that, collateralized by Northwest's facilities at the airport and to be paid back from revenues derived by the Metropolitan Airports Commission from those properties for which Northwest pays a fee to MAC.

Now, the way that is rationalized is simply that the enhanced value of gates and operating activities at the airport is enhanced because Northwest has developed-- this hub has developed a very imposing presence at the metropolitan airport. And Northwest is simply recouping some of the investment value that it has created in that airport.

That airport represents a $2 and 1/2 billion annual economic impact for the Twin Cities area and some 80,000 jobs. And it's a mutual benefit. If that carrier isn't successful, those jobs aren't going to be there, or at least not to the degree they are today.

The second part of the package is clearly an economic development initiative by the state of Minnesota, which it has done time and again throughout the state. There are dozens and dozens of instances of state bonding to generate private investment and private development. The Hubert Humphrey Metrodome, for example, is a very good case in point where the state invested money. It benefited private enterprise, but it also created a great deal of economic activity that benefits the Twin Cities area primarily and the state generally.

Mike, do you-- Lake Superior Paper Company in Duluth is another example of state bonds for a private purpose that created private sector jobs and are being repaid. And finally, it has to be noted that all of the value of the bonds is collateralized by Northwest Airlines' parts, equipment, routes. And that collateral was very diligently negotiated by both sides the state and Northwest Airlines and MAC.

GARY EICHTEN: Mike, do you have a problem with the philosophical underpinnings of this deal?

MIKE HAMILTON: Well, I think that there is the philosophical debate. And I think that probably realistically, Art Rolnick, when he was in front of the MAC Oversight Committee over in the legislature, did an able job of arguing the public policy problems. I don't tend to be as much of a purist. I think the reality in today's world, we are in a pinch where jobs are important to any state. And the reality is states are willing to buy jobs back and forth from one another.

The difficulty that I've got is that once you make a decision where you are going to cross the realm into the private sector, if you will-- and I think clearly we did that here-- then you better negotiate and act as if you were in a private setting. You look for the same kind of restrictions, covenants right down the line as you would otherwise.

And there, I would debate. I think that we saw the embarrassment for a period of time there on the part of the state where they were caught sitting on their hands as volleys were being fired back and forth as to Northwest's status. And the state was left to look on the sidelines as an outside participant. Once you commit to putting something of a magnitude of 800 million, I think that you should be able to be in a position where you can have some steerages to direction that things are going.

And in terms of concrete examples, we have nothing in terms of relative protection of jobs in this state versus Michigan versus Memphis. There's a lot of critical issues that could have been negotiated. And I think that if you crossed the realm and you throw out the view of the public-private-- and I think it is a blurred area right now-- once you do that, I think you better sit down and negotiate it as if you were running a business.

GARY EICHTEN: Let's take another caller. Hello.

JIM OBERSTAR: I want to comment further on that point because it is very important. United Airlines recently concluded a deal to the state of Indiana that involved about $1 billion in bonding from the Indianapolis Airport Authority to build a maintenance facility. Indianapolis has nowhere near the stature of Minneapolis-Saint Paul and yet was able to go out with and float bonds on the initial increment to build this maintenance facility.

The state exempted United Airlines from ever paying any tax in the future in that state and even set aside a reserve fund in case they overlooked some tax from which United could be compensated.

In the case of Northwest, I must underscore that there were very carefully negotiated covenants following enactment of the legislation that the state, MAC, and Northwest Airlines entered into, including commitment to maintenance of a hub, maintenance of the headquarters and job levels, but also spare parts, aircraft routes that all were put up as collateral in the event of a failure of the Northwest to live up to any part of the agreement. Those are all very carefully negotiated protections for the public.

MIKE HAMILTON: And also, I would add, though, very heavily debated in the media and in private circles as to what exactly was obtained and how. I mean, we're dealing with a very complex issue there. And as an example that I would put forth in an era where we have just seen, thankfully, as labor has come through in what appears to be the concessions here, we have bought ourselves time.

But if the state has to end up at the negotiating table at some point in time in a receivership issue, I would much rather be negotiating from a point of view of having gates and slots on the West Coast as collateral than some routes into Europe. And a lot of those issues have been heavily debated. And I think the reality is any way we cut it, when push came to shove in the darkest hour back here over the last couple of months, when it came to negotiating effectiveness, the state had its hands tied behind its back.

And if you are going to cut a deal of the magnitude that we're talking here, when you get into a position of these kinds of discussions, you don't want to find yourself in that position.

GARY EICHTEN: Industry analyst Mike Hamilton with the Leuthold Group joining us by satellite from Washington. Minnesota Eighth District Congressman Jim Oberstar, who represents, of course, the northeastern part of Minnesota and is one of the Congress's acknowledged experts in the aviation industry. Let's take another call. Hello.

CALLER: Hi. Yes, good afternoon. Hello. I have two quick questions. I would like both gentlemen to answer if they could. And the question is that the-- first question-- now that it appears the unions will sign off on these concessions, will the bank also sign off on restructuring some of the debt payments and debt loads for Northwest Airlines? And if they do, if the banks do also sign off on the debt restructuring, how important is that sign-off by the banks to the long-term survival of Northwest Airlines?

GARY EICHTEN: OK. Mike, do you want to start? Are the banks going to follow suit here? And is that enough to save them?

MIKE HAMILTON: Well, the banks obviously are going to decide on how they see fit. And of course, one of the concerns is that you do have a school of thought that argues that from the lender's standpoint, the best thing they can do is just pull the plug while they know where collateral stands and how things fit together. I think that the reality is that the lenders are going to do their best to not have that happen, particularly when they see labor in a position where they look to be making what is certainly a very meaningful set of concessions.

You've got an unusual situation here because the lead lender, the lead bank in this consortium, Bankers Trust, also happens to have roughly a 10% ownership stake. So their position is not quite as traditional as we think of a traditional banker who's given a loan. They're sitting on both sides of the fence where they're trying to protect an equity investment and also trying to protect a traditional loan. So how that all plays out remains to be seen.

I think that, clearly, one way or another, concessions need to be made here at a minimum in timing of receipt of the loans. From my standpoint on the magnitude of the problems of the industry concessions, including some rollbacks on ultimate payments, in other words, taking some write-downs on the value of those loans now, is probably pretty important too.

But again, there's only so far you can push the lenders. And it's, to a degree, going to be at their discretion of their best interests. So I think it's very difficult for people on the outside to try to speak authoritatively as to what they may do.

GARY EICHTEN: Congressman, you want to take a guess? Do you think the bankers will go along?

JIM OBERSTAR: As Mike said just a moment ago, Bankers Trust has a very special role to play here. They have equity to protect, which makes them all the more eager to put together whatever additional financing may be necessary to carry Northwest through this difficult time and to look to restructuring of past loans.

They are the lead in this proposition. And while they have an equity position, they also have to look very sharp eyed at Northwest's condition and make sure that whatever investment they make further or whatever financial commitment they make further or induce others to make is going to be a solid one. And I think everybody held back. KLM held back. Bankers Trust held back, waiting to see what would come out of the labor negotiations.

And as the machinists put it very clearly in their letter of intent, this is a carrier that, without some assistance from its unions, would be moving toward bankruptcy. They want to avoid that. They want to protect the jobs, and they made real concessions.

And the reality of those concessions, the real dollar savings to Northwest, the real productivity improvements gained are, from what I can understand, convincing to the financial community to take the next step. Without those commitments, I don't think the financial community would be moving in the direction they are now. And when the contracts are signed, then I think you'll see some movement by Bankers Trust and potentially KLM. And I think, properly, that step follows the first one of the actual sign-off of the contracts.

GARY EICHTEN: Thank you. Another call, please. Hello.

CALLER: Hello. My name is John Byar, and I was an employee of Northwest until a week ago. I was one of the 500 people. And I'm a Minnesota taxpayer.

And Minnesota seems to have more progressive employment regulations. And they passed some last summer. But we were told that Northwest, they don't apply because Northwest is incorporated in Delaware. I guess Delaware, where most corporations are incorporated, has the most lax regulations. I guess I want to know why they didn't try to change that when they made this deal.

GARY EICHTEN: Let me ask you something, sir, before you hang up. Were you one of the folks-- I mean, you end up the short end of the stick here. Were you one of the folks who was-- Northwest employees, who was pushing the state pretty hard last winter to put this deal together and come up with the money for Northwest?

CALLER: No. You mean involved with the lobbying?

GARY EICHTEN: Yeah.

CALLER: No, I wasn't.

GARY EICHTEN: How did you feel about it at the time, though? Did you think it was a good thing for the state to do?

CALLER: No, I didn't.

GARY EICHTEN: OK. Why wasn't more of an effort made. Any idea, Mike, why some effort wasn't made to give the workers out at Northwest a little more protection?

MIKE HAMILTON: I can't speak to the particulars of the law as it stands in Minnesota as to-- I assume he's alluding to what kind of potential benefits or aid there would be for this kind of situation.

Looking at the big picture, from my standpoint, the critical error that was made on the part of the state at the very onset was there were a series of logical, strategic options that Northwest laid out as a potential if the loan was not come through, if the financial package allowing the bases was not put together, because obviously, these bases need to be developed if the A320 is going to fly and be maintained in this country. And among those was pulling the headquarters, pulling the hub or putting the bases elsewhere.

And I think that the reality, again, at that stage, you were putting into a bargaining position. And so what I'm saying here is purely one person's opinion. Once you're in a bargaining position, you have to assess, what is the power of the threat that is being made against me? And what is my response? And my view was, and still is, that the likelihood of Northwest's ability to pull the hub or pull the headquarters anywhere over the short or intermediate term was nil.

And so I think that there was a mistake made in the read of the bargaining clout that Northwest had. And what we've seen in terms of what terms were cut as a result have flowed out of that.

Now, there are those who would argue with me, we've locked in bases. We've locked in hubs, et cetera. But the reality is that in industrial America today, you're there until the next deal comes along to be negotiated. And what we've guaranteed is the next deal that comes along, we're going to be kind of back in the soup in one way or another, going through the same kind of things we've just been through.

So again, it's tough because I think that you're asking people who've traditionally been in a public policy role to put on their thinking hats as business people and negotiate accordingly. And sometimes it's done, and sometimes it isn't. I look at it from the standpoint-- I mean, if I were looking at it as an investor and an investment, there's a lot that wouldn't make sense.

And realistically, you say, well, that's the nature of public policy deals. But again, you have to come back to whether you buy into my initial philosophy that I laid out that if you're going to cross over the line and go into a position where your funding is a private enterprise, then you look at it differently than you do when you're talking about building bridges and sewers and all of the traditional things that we think of government doing.

And I think that that's where we missed the mark to really assess, what things do we really have to have? What are the critical variables that are needed in terms of the bases, the employment positions, labor dollars involved with Minnesota vis-a-vis other hubs and negotiate it? And that's difficult. But I don't think, when all is said and done, that it was a particularly stellar job.

GARY EICHTEN: Our guests are Mike Hamilton, who's a financial analyst with the Leuthold Group, and also Eighth District Congressman Jim Oberstar, who's joining us via satellite 16 minutes before the hour. Let's take another call. Hello.

JIM OBERSTAR: Before we do that, can I pick up on that last question and some of the points made? First of all, I don't know what the Delaware corporation status means to employee rights in a layoff. Minnesota law, it seems to me, applies in that situation.

I'd have to know a little bit more about Mr. Byar's particular concern when he said he was told that because Northwest is a Delaware corporation, Minnesota law doesn't apply. Something doesn't ring right there. And I'm not quite sure what that conversation referred to.

Secondly, Mr. Hamilton put the layoff in the context of the loan package to Northwest. But employee problems would have been there with or without the loan package. If there had been financial difficulties at Northwest, with or without this loan package, there would still be employee rights, layoff, job seniority considerations that would have existed without this loan package.

Finally, we must understand what the public policy initiative was here. And that was to provide a repayable loan financing for construction of a maintenance facility whose purpose is to create jobs in Minnesota, the payroll, the economic impact of those jobs, and the benefit to the estate of having a major maintenance facility for advanced technology aircraft. That was the public policy consideration that underlay this whole initiative.

And the prospect was that those jobs would go someplace else if they didn't come to Minnesota. And it is a fact of life today that while, yes, as Mr. Hamilton said, the traditional things government does is roads and bridges and sewer and water, but one of the traditional things it's doing today that governments at all levels are doing today is providing financial incentives for businesses to locate within their borders.

And that's happening all over the United States. It's a bitterly competitive business. Minnesota offered a very, very conservative package to Northwest. I think we were fortunate, if we ever do get those bases built, to have those jobs in Minnesota.

GARY EICHTEN: Let's take another caller. Hello.

CALLER: Hi. My name is Kurt Erickson. I'm from Saint Paul. I guess I have a half statement and then a question. It seems that the financial problems with Northwest started with the debt incurred by the leveraged buyout, and that the public policy issue is really not whether we're going to go in and bail out people like Al Checchi, who seem motivated more by personal greed and ambition than any even remotely altruistic motivation.

It seems public policy should be to prevent this kind of leveraged buyout from happening in the future. And my question for Congressman Oberstar is, what have you done and what are you doing and what do you plan on doing to prevent this kind of reckless and dangerous capitalistic activity from occurring in the future?

GARY EICHTEN: Congressman?

JIM OBERSTAR: I introduced and held hearings on, reported out of my subcommittee, out of the full committee, and passed through the House legislation to restrain leveraged buyouts. And the bill got over to the Senate, where it was bogged down. The Bush administration torpedoed the legislation. They didn't want any such legislation. They saw it as reregulation.

I think had that legislation passed, there would have been a much different playing field for the airline industry in particular. This legislation was targeted specifically to the airline industry. Maybe with a new administration, we've got a new look, and we can do some future preventive things.

But I must also say that while true, the buyout imposed a significant amount of new debt upon Northwest Airlines, had the economy held, I think Northwest would have been in a very good position. It certainly wouldn't be losing as much money as it has today.

I don't think anybody anticipated, at the time of the buyout, the Gulf War, the loss of revenue between the United States and Europe, and the more than doubling of fuel prices, which have remained high since then, and loss of passenger revenue in what was a $10 billion dollar market between the United States and Europe.

GARY EICHTEN: Mike, are we still seeing that kind of takeover activity across the board in the business community? Or has that pretty much come to a halt?

MIKE HAMILTON: Well, it hasn't come to a halt. I think that the bottom line in this kind of activity in free market system is, what are the banks willing to do? And Al Checchi and Gary Wilson had the stars all lined up very favorably at the time that they did the deal. You were at the absolute peak of the frenzy in LBOs. Checchi and Wilson, the Wings Holding Group, actually had two bank consortiums fighting each other out over terms of the deals as to who could do the lending.

And so I mean, the terms by anyone's standards ended up being very loose and very generous in an industry that's very cyclical. And the point that I'd make, while it is true that none of us could foresee the Gulf Crisis or the economy-- as I'm fond of saying, I've lived in the Twin Cities about 10 years now and have been through three storms of the century. I've been an airline analyst for 12 years, and I've been through five disasters of the century.

Whether it was the oil shock of 1980 to '82 or PATCO or the consolidation that took place post-Braniff in '81 or post-American's Ultra Super Saver in '86, this is an industry that is very, very capital intensive, where you're talking about planes that can run $150 million a pop, and you're compounding operating leverage on financial leverage.

And the first rule that they teach you in finance 101 is you do not mix operating and financial leverage. And there were a tremendous number of people beyond just the Wings Holding Group back in '86, '87, '88 who were convinced, much like the economy wouldn't see a recession again, that the airline industry had become a growth industry again. And so you were buying Northwest Airlines on assumptions that it was a growth industry. And those assumptions just haven't held out. And they were suspect at the time.

GARY EICHTEN: Let's take another call. Hello.

CALLER: Yes. Hi. Yes, this is Bob calling from Minneapolis. And as a present Northwest Airlines employee, I cannot see why the unions are being the scapegoats that are going to have to make concessions for an airline and for its owners that have kind of made a wrong move strategically in its investment.

GARY EICHTEN: So you oppose your union's giving concessions?

CALLER: Absolutely. Let me add. I am also a former employee of Eastern Air Lines. And there are great parallels here.

MIKE HAMILTON: I think you've probably answered your question on that basis. We see where Eastern Air Lines is today with a tremendous reticence to make concessions.

GARY EICHTEN: What about the argument-- and then we'll move on to another caller. But quick question for you, sir. What about the argument that if you don't make the concessions, there's going to be an airline to work for?

CALLER: That's true. But why should the employees be the ones that have to bear the costs?

MIKE HAMILTON: Because the taxpayers have already stepped up to the plate.

CALLER: Ah, I see. I see.

MIKE HAMILTON: I don't mean to be cute on that at all because I realize this is a very painful issue for everyone involved. I come out of a 12-year background in the brokerage industry. And you find tremendous number of brokerages where employees are partial owners of their firms.

And the reason for it is intuitive. When you think about it, like the airline industry, the brokerage industry is very, very cyclical and, in the good times, can make a lot of money and, in the bad times, can lose a lot of money. Now, if you're in a traditional organization where labor does not have an ownership interest, traditionally, labor participates in the bad times and isn't around with an ownership position to participate in the good times.

So I think, philosophically, over the long haul-- I'm not talking about the pain. And I realize it is big pain to be talking about the concessions taking place over the next three years. But in the long haul, I think that the answer to the airline industry, if employees are going to be able to enjoy any kind of participation for the risk that they're going to be forced to take just by being employed in the airlines, is that there is an ownership stake so that, as we saw with Chrysler in the early '80s, if there is success and all of your hard work and what goes into helping to finance the survival of NWA, hopefully, on the other end of that tunnel is a very nice return.

Now, it's difficult to make a bet on that. I understand. But the reality right now is that there's a lot of money that needs to be come up with for NWA. And there's very few people offering to do it.

GARY EICHTEN: Let's take another caller.

JIM OBERSTAR: I sympathize with the caller's viewpoint. I grew up in the Iron Range, where, in the mining industry, we had tough negotiations. As a youngster, I witnessed and participated in a 159-day strike. Nobody really gains. In the long run, you gain honor and self-respect in the end as a union member for standing up for principle.

But we had soup for lunch and soup for dinner and soup for the weekends. And we were lucky to have that. And in the end, as Mr. Hamilton just said, we never got a piece of the company, not one of them.

If in the further negotiations between the unions and management, there are concessions by management that lead to a union position that provides greater benefits in the future and a say in the management of the carrier and some profit sharing in the future, then it will have been more than worth the concessions being offered at this time. Distasteful as they may be, I think all unions have recognized that they're in this together with the carrier. And what's that question now is survival. And if this is a way to survive, they've decided that this is what they want to do.

GARY EICHTEN: Let's take another caller. Hello.

CALLER: Hello. Yeah. This kind of piggybacks my question on what you've been just talking about. We have-- or our unions. And I am a member of the pilots union. Total, we're going to put in over more than $900 million in cash, the largest investment of any one organization, banks, private investors.

And since we're filling up the entire pot there to run this corporation, I believe and I know our union is looking at an ESOP down the road. Will Congressman Oberstar and the financial community in Minnesota back us as enthusiastically as they backed Al Checchi and Wilson and Malek when they came in and bought out our corporation?

Will Fritz Mondale, who's not there today but who may be listening, who is a board member on Northwest Airlines, will he enthusiastically support all of our labor groups in gaining control of this corporation in the future? Thank you.

GARY EICHTEN: You're interested in more state money?

CALLER: I'm interested in any state money. I think our cash that we're putting in there is hard cash on the table. And it's more than any other investment group we've put in there. And I think ownership of the corporation down the way should come our way.

It's going to be a battle, though, because as was mentioned by your financial analyst, we're dealing with personalities that have a lot invested in the outcome of this corporation, its future. And so there's going to be a battle of wills as to whether they want to allow this corporation to be owned by the workers.

GARY EICHTEN: So I'm just trying to clarify what you want here. You want the government officials to get behind you and support your demand for an equity position?

CALLER: Yes.

GARY EICHTEN: OK. We only have we only have about a minute here, Congressman. You have a minute or two if you could respond to that?

JIM OBERSTAR: Under certain circumstances, I think it is in the interest of employees to work for an ESOP. You want to be careful. Steel industry, for example, is a very bad place to undertake an ESOP because, usually, plant and equipment are outmoded, outdated, and very highly debt ridden, not a very good opportunity for employees to engage in a stock ownership plan.

This carrier might be a very good exception to that concern. It may well be well positioned with the type of aircraft, the mix of aircraft that it has, its plans for aircraft acquisition in the future, its route structure and gates to be well positioned for an ESOP. And if that's something union decides it wants to do, then I would encourage management to move in that direction.

GARY EICHTEN: Mike, do you think it makes any sense at all to--

MIKE HAMILTON: Yeah, I'd quickly make it along two lines. One, I think you can be assured that the financial community, by and large, likes to see ESOPs. They like to put their money in a place where they know the employees are as well.

And I think the reality is, again, the horse is out of the barn. I mean, what choice do you have? Rather than looking at all the opportunities, there's clearly risk here. And I'd put it more analogous to what we saw with Chrysler in the early '80s.

10 years later, Chrysler is by no means out of the woods. But the ESOP participants who played the risk in 1981 did very well as a result. And hopefully, that's the kind of thing that we can see, even if 20 years out, we see we've made a mistake in the whole thing.

GARY EICHTEN: Congressman, we're going to lose you here. We're going to lose your satellite signal in about 50 seconds. Thanks so much for joining us. Quick last question for you. Is Northwest Airlines going to be around in the foreseeable future?

JIM OBERSTAR: Northwest is a survivor. They're well positioned with aircraft, plans for the future, for modernizing the fleet. They're in good markets. I'd like to see them strengthen their position on the East Coast. They're well positioned with their partner, KLM, for participation in the European market, which internally was about a $40 billion market last year. I see them well positioned in the Pacific. And I think that they're going to be clearly one of the four survivors.

GARY EICHTEN: Thank you, sir, so much for joining us. Appreciate it. Minnesota Eighth District Congressman Jim Oberstar joining us via satellite from Washington. And Mike Hamilton has been good enough to come in as well. Mr. Hamilton is a financial analyst, airline analyst with the Leuthold Group here in the Twin Cities.