Star Marianas has sued Marianas Southern Airways, its parent company Southern Airways Express, and Keith Stewart in his individual capacity, and is asking the U.S. District Court of the CNMI to permanently enjoin these defendants from conspiring to violate the nation’s antitrust laws. According to the complaint filed in federal court today, Star Marianas is asking for an unspecified award of actual damages, treble damages, prejudgment interests, and attorneys fees.
Former CNMI Governor Ralph Torres gave MSA an $8 million sole source contract using federal pandemic funds for the now-defunct airline to operate flights among the islands of the Marianas in 2022.
The contract gave MSA an immediate infusion of $1.5 million for its start up costs. At first, MSA was to provide flights to and from Saipan and Guam at no more than $99, Tinian and Saipan at no more than $39, Rota and Saipan at no more than $69, and Rota and Guam at no more than $69 for the first six months of operation. Later, they raised their prices. In return, each of those flights per-passenger costs were subsidized by the CNMI government at about 500 percent of the charge rates, making the actual cost of inter-island air service aboard MSA substantially more expensive than that of Star Marianas.
Arnold Palacios canceled payments to MSA once he became governor in January 2023.
“As a recipient of ARPA funds, Marianas Southern Airways is obligated to comply with Congress’ stated purpose, federal rules, and regulations,” the Star Marianas complaint states. “After accepting ARPA funds, Marianas Southern Airways’ assurances became a binding obligation between it and the federal government. Because it accepted ARPA funds, Marianas Southern Airways was required to utilize received funds for its intended purpose, not as a means of creating unfair treatment within the several islands in the northwestern Pacific Ocean’s airline and air travel industry.”
Star Marianas alleges that the government subsidization of MSA through a sole source agreement led to “total loss of revenue estimated between $1,500,000.00 and $2,000,000.00.”
“Southern Airways Express willfully, knowingly, and with specific intent to do so, attempted to monopolize the airline industry market through a litany of anticompetitive conduct,” Star Marianas alleges in its complaint.
They further allege the defendants’ conspiracy was an attempt to “remove Star Marianas from the CNMI’s air carrier market.”
These efforts, according to Star Marianas, violated Section 1 of the Sherman Antitrust Act of 1890, which was mandated by Congress to prohibit anticompetitive practices that resulted in the takedown of competitors in order to form a monopoly in a given industry.
Star Marianas further alleges the defendants violated Section 2 of the Sherman Antitrust Act, “Specifically, Marianas Southern Airways utilized the Contract and its sole subsidized air carrier position to create unreasonable restraints on competition in the CNMI’s airline industry market, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.”
The plaintiff further alleges additional violations of Section 1 of the federal law, including that “Southern Airways Express’ unreasonable restraints unlawfully insulated Marianas Southern Airways’ card acceptance fees from competition, increased costs of payment acceptance to merchants, increased prices, reduced output, harmed the competitive process, raised barriers to entry and expansion, and suppressed innovation.”
In the complaint Star Marianas alleges that Mr. Stewart misrepresented “expressly or by implication” the use of the funds “in numerous instances in connection with the advertising, marketing, and promotion” of MSA.
“Stewart’s primary purpose for pursuing and entering into the Contract was to cause injury to Star Marianas and to attempt to monopolize the CNMI airline industry,” the complaint states. “The Contract created an unreasonable restrain (sic) on competition, in the CNMI’s airline industry market, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.”
United Airlines increased its flight prices between Guam and Saipan shortly after public disclosure of the MSA sole source contract. UA has never confirmed whether the increase was a coincidence or a response to the market forces created by the MSA entry into the market using federal funds sole sourced to MSA.
