RECORDS: CPA tried to run out Star Marianas immediately before Torres invited MSA
Marianas Southern Airways president Keith Stewart said his company’s inter island flights will grow into an international airline, if the Commonwealth’s people say so. And, if the Commonwealth government will at least negotiate a new agreement with MSA.
“Our interest in providing a solution was to meet the needs of the community long term,” Mr. Stewart said of his company’s early-2022 decision to partner with Southern Airways and provide inter-island air service. According to Mr. Stewart, his original business concept was to start an international airline based in Saipan. He put that idea on hold in order to get MSA off the ground.
“We brought in these planes,” he said of the initial effort, funded by a $1.5 million subsidy invoiced on March 21, 2022, and paid by the CNMI Department of Finance the same day. He said MSA has invested $10 million so far. “We hired 40 employees. We were looking at bringing in three to four other aircraft before the government slowed its payments.”
The current air service, the future of air service, and even plans for international flights through a proposed Northern Marianas Airways are under threat, he says, because the Commonwealth government is reneging on an $8 million Torres-era contract.
The contract, signed March 16, 2022, essentially promised MSA an $8 million federally-funded subsidy in return for low rates for six months for flights among Saipan, Tinian, Rota, and Guam. Nearly $2.4 million already has been paid to the company, with an additional $818,923.21 invoiced and owed since November, according to MSA records.
Secretary of Finance Tracy Norita last week notified MSA the Commonwealth government will be exercising a provision in the contract allowing for unilateral termination based on a rather pertinent factor: the government is broke.
According to information from both the governor’s office and his transition reports, former Gov. Ralph Torres left the General Fund in a more-than-$300 million deficit, and an over-obligation of federal pandemic funds by more than $80 million. The latest audited financials of the Torres administration’s spending of federal funds confirm corrupt, wasteful, and unaccounted spending.
But, Mr. Stewart said he was led to believe that $8 million was in the account the day of the contract signing, and should have stayed in such an account for the CNMI government to make good on the deal.
“That contract certified that the funds were there,” Mr. Stewart lamented. “It provided the account number. It was certified that it met CNMI procurement regulations. It was signed by the attorney general.”
The company wants to work things out with the Palacios administration, he said, even if it means drawing up a new agreement.
“It’s really up to the governor,” he said. “We were looking at trying to work things with the governor and the Senate. If they want to find another solution at how to get there, we can work with them. If we’re not wanted, we’ll take the planes and fly to a community that does want this. But we want to be here. We love these islands.”
“If the community wants MSA to stay in service, I just ask that the people let the government know. This is up to the community and whatever they want.”
Level-playing field v. subsidizing the competition
Among Gov. Palacios’s concerns with his predecessor’s commitment of $8 million the government (no longer) has is that one airline was favored and has an advantage with financial subsidy, while an airline operating in the Marianas since 2008 received no such assistance.
“We want our Commonwealth to be a place where all businesses know they can operate and compete on a level playing field,” the governor said. “I question the fairness and wisdom of issuing such a lucrative agreement to a new private venture when an existing competing vendor was already providing the same service and was not offered a similar opportunity.”
Mr. Stewart, in a news release, stated, “In December 2021, our islands lost airline service at Rota and Tinian,” a reference to a standoff between MSA’s main competitor Star Marianas and the Commonwealth Ports Authority that resulted in a late-2021 suspension of air service affecting Tinian and Rota.
The standoff started, when CPA board chairwoman, Kimberlyn King Hinds – a Torres appointee and member of his campaign’s kitchen cabinet – led the charge to cancel the company’s Airport Use Agreement and unilaterally impose a new fee methodology. That methodology greatly increased Star Marianas’s costs to fly its aircraft among the islands.
“This unilaterally implemented fee structure placed SMA in its current business dilemma and created an uncertain business climate which makes responsible financial management of SMA’s operations tenuous and speculative,” Star Marianas Air president Shaun Christian wrote to the Federal Aviation Administration on December 6, 2021. “At a minimum, in order for SMA to operate profitably it would have to pass on these massive increases to its customers and make inter island travel grossly cost prohibitive. Therefore, until the CPA offers a rate setting methodology that enables SMA to offer its aeronautical services to the public under reasonably predictable conditions that can be relied on and are truly compensatory as required, SMA has determined that its operations will continue to be suspended.”
According to CPA’s records, its three categories of fees – terminal rental rates, landing fees, and turn fees – have all increased significantly since 2020. From last year to this year alone, terminal rate fees skyrocketed 258 percent. The cost per passenger also increased 75 percent.
MSA, according to the agreement with the government, gets a 75 percent discount on those fees, placing Star Marianas at a severe disadvantage. On top of that, Star Marianas did not receive any subsidy at all from the Torres administration, while MSA received $2.4 million out of the $8 million former Gov. Torres promised the new company.
The admitted timing of the deal’s origins also coincides with the Torres-era CPA’s efforts to price Star Marianas out of business.
“The [Torres] administration issued an emergency declaration and, due to our ongoing efforts to start an international airline in Saipan, MP Enterprises (MPE) was one of several companies who were called to see if we could help,” the MSA news release states. “MPE was not working to start an inter-island airline, but we decided that the need was too great to ignore. MPE was thankful that America’s largest commuter airline, Southern Airways, agreed to partner with us. The new joint venture, Marianas Southern Airways, submitted a proposal to the government in January, and after a couple months we were issued a contract in March 2022. The contract was signed by the Director of Procurement, Secretary of Finance, Governor and the Attorney General. It certified that all CNMI procurement regulations had been followed and that the funds were identified, available, and committed. The contract even included the government bank account number where the funds were on deposit. MSA relied on this information. Where did the funds go?”
02/26/2023 at 6:48 AM
I hope people in our government will read this.
I strongly support the MSA, despite all the Torres shenanigans. Especially now, since Untied Airlines is charging $600 for a round trip to Guam.
02/28/2023 at 10:42 AM
UNTIED Airlines woke up. It’s now $396 RT to Guam.