Southern Air may sue NMI gov’t

Senate Public Utilities, Transportation and Communications Committee chair Sen. Paul A. Manglona (Ind-Rota) presides over a public hearing yesterday to discuss with the Commonwealth Ports Authority and the Marianas Visitors Authority what they’re doing to address the CNMI’s air transportation challenges with regards to interisland travel. Also in the photo are members of the PUTC Committee and officials of the Marianas Southern Airways and Star Marianas Air. (FERDIE DE LA TORRE)

Southern Airways, the largest commuter airline in the United States and partner of Marianas Southern Airways, has implied that it may file a lawsuit against the CNMI government, even as it asked for a dialogue with Gov. Arnold I. Palacios and for him to rescind his termination notice immediately, as well as pay $918,000 in invoices that have been billed thus far.

In a March 1, 2023, letter that Southern Airways chair and chief executive officer Stan Little wrote Palacios—a portion of which Marianas Southern Airways vice president William Giles read yesterday before the Senate Public Utilities, Transportation and Communications Committee—Little stated that a termination of service comes with great consequence to the CNMI. He cited the financial implications from the unemployment claims that will likely be filed by over 30 of their employees and for the “termination of convenience” damages that Southern Airways will file, pursuant to a provision in the original contract.

Palacios terminated last Feb. 23 the government’s $8 million contract with MSA, citing a lack of funding.

In his letter to Palacios, Little said he is hopeful that their company and Palacios can soon issue a positive joint statement to the public that not only instills confidence among residents that they will never again be stranded and feel hopeless due to the whims of just one aircraft operator, but also sends a message to the rest of the world, not just the aviation community, that the CNMI is open for business and welcomes economic investment.

MSA and Southern Airways has since stated that Palacios has not responded to their letter, nor made any effort to communicate with them.

PUTC Committee chair Sen. Paul A. Manglona (Ind-Rota) held the public hearing to discuss with the Commonwealth Ports Authority and the Marianas Visitors Authority what they’re doing to address the CNMI’s air transportation challenges with regards to interisland travel.

Senate President Edith E. DeLeon Guerrero (D-Saipan), who attended the hearing, said it is in the interest of all parties in any business to have a conversation.

“And I will say for the record that the CNMI cannot afford any further litigation on any matter. I would definitely do not want to see that. I am hopeful that some kind of communication can happen,” DeLeon Guerrero said.

Sen. Corina L. Magofna (Ind-Saipan) said she will make an effort to reach out to the governor about MSA’s request for a dialogue.

Manglona noted that Oscar M. Babauta, the special assistant for administration, was present for the most part of the hearing and that he is sure that Palacios or the administration is listening to the discussion as it’s televised live.

Little stated in his letter to Palacios that their reputation of being a reliable, safe, and affordable airline has never before been impugned by the way it was by his (Palacios) recent decision and its accompanying news release.

“Regardless, we are not seeking an apology, but rather a forum to determine if either side wishes to find a path forward,” Little said.

He said everyone will be made aware that Southern Airways passed on many easier and more lucrative route possibilities to instead establish a base 16 time zones away from their corporate headquarters in Palm Beach, Florida.

Little said this was due to their perception of the long-term need in the CNMI and their expertise in operating routes in such a remote environment.

He noted that in December 2021, the only airline (Star Marianas Air) serving the Marianas archipelago abruptly suspended operations, disconnecting the people of Rota and Tinian from essential services and medical care that are only available on Saipan and Guam.

“This also served as a dire warning to the business community that your island economy would come to a grinding halt should such a lapse in air service become permanent,” the CEO said.

As a result of an emergency declaration by Palacios’ predecessor, former governor Ralph DLG Torres, Southern Airways was identified as the only potential and qualified airline partner to provide stability for the air service needs of the islands, he said.

“We were not looking for an opportunity, but when called upon, we saw the similarities between the essential need of connecting the CNMI to the services we were already providing in Hawaii. We felt compelled to act,” Little said.

He said they traveled to the CNMI in January 2022 and openly met with the Torres administration, members of the Legislature, and the Commonwealth Ports Authority.

Little said a fair agreement was reached, and with bipartisan support, it was approved by Torres, former Finance secretary David DLG Atalig, and Attorney General Edward Manibusan.

He said the basics of their contract were that in exchange for investing in brand new aircraft for the islands, developing infrastructure, and expending a huge amount of human capital, they would be paid a monthly incentive for every flight flown.

Little said that Palacios’ public criticism of this being a sole-source contract, while factually correct, is “patently unfair” as the criteria for receiving such a contract was satisfied under the CNMI law.

“This needless demonization lacks an understanding of the current state of the global airline industry. We are the only airline in the world that would have taken this risk,” he said.

The CEO said he is completely confident that no outside airline will ever again take a risk on interisland travel within the CNMI.

Little said that Palacios’ claim that this is a “lucrative” contract has actually amused many of their colleagues in the airline business, since it is readily apparent to anyone in the industry that, even with the incentive payments, they are and will continue to lose tens of thousands of dollars each month until these routes are fully matured.

The CEO said they believe that 18 months of government subsidy and verbal support (or silence) from the administration can lead to a sustainable and long-term air service solution that can last for generations.