CEO Says Workers Will Be Repaid Next Year
Last week, federal agents descended on the headquarters of The
Petters Group in Minnetonka, MN and there was no explanation
why the financing company was hit. Now, we
know.
On Friday, the search warrant was unsealed... and the
Minneapolis Star-Tribune reports the raid, and a simultaneous one
on the home of Tom Petters, was made in search of evidence in
connection with a major fraud investigation.
The firm's Petters Aviation subsidiary owns all of the voting
shares in Sun Country Airlines, and has pumped in $25 million in
the past year to cover losses. Until recently, Petter Group founder
Tom Petters was the chairman of the airline's board... a position
he resigned Monday, under the cloud of accusation and strong whiff
of corporate malfeasance.
Despite the close connection, Sun Country has not been involved
in the investigation to date, and its recently-hired CEO insists
normal operations will go on. But things won't be exactly
"normal."
On Monday, Sun Country CEO Stan Gadek told workers they'd have
to accept a 50 percent "pay deferral" through the end of 2008,
saying the current quagmire at Petters has made it impossible for
Sun Country to borrow money to keep the airline going.
Gadek expects small losses in the third and fourth quarters, and
a return to profits in the first quarter of 2009. The airline
reported cash reserves of only #2.3 million at the end of June...
but Gadek says that doesn't include $25 million in ticket revenue
being held on behalf of passengers by credit card companies for
travel booked, but not yet flown.
So, in essence, the airline has asked its employees to lend it
the cash to get through the current crisis. KARE-11 reports the
airline hopes to pay back the money, with interest, from profits
expected during the first quarter of next year.
Gadek says the airline is ready to stand on its own. "I'm
confident that Sun Country will be able to achieve that goal," he
said in a recent email to Sun Country employees. "The irony is that
our business has never been better."
Gadel was brought on board in March. He has already dropped
unprofitable routes, achieved union wage concessions after cutting
his own pay, and landed military charter business, as well as a
contract to transport Democratic Senator Joe Biden to his many
campaign appearances this fall.
It's worth noting that Sun Country actually turned a profit in
July and August, as most other airlines reported sizable losses.
But Gadek says fuel costs are still too high, and he's negotiating
with vendors to delay payments through the expected soft months of
November and December. He's also planning to ask Minnesota's
Metropolitan Airports Commission for help.
MAC spokesman Patrick Hogan says financial assistance might be
offered, but there's been no formal proposal from the airline so
far.
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