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.

FMI: www.suncountry.com, www.pettersgroup.com