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High-flying politics
Lance Williams
OF THE EXAMINER STAFF
  Nov. 30, 1997

Candidate Al Checchi opposes special interest money, but his airline paid out plenty

Democrat Al Checchi, the aviation tycoon using his $600 million fortune to run for governor of California, says we've got to get the special interest money out of politics.

It's troubling that "access to government continues to be bought and sold on the auction block of special interest politics," this former co-chairman of Northwest Airlines declared earlier this year.

But federal records show that in the years Checchi was at the helm, Minnesota-based Northwest emerged as one of the most potent political money machines in the heavily regulated aviation industry, spending millions to seek tax breaks, win new air routes and obtain relief from costly proposed federal regulations.

From 1991, the earliest year for which records were readily available, until the spring of 1997, when Checchi stepped down to seek the Democratic nomination for governor here, Northwest spent more than $5.6 million lobbying federal lawmakers and agencies on issues vital to the airline's bottom line, according to reports filed by the company.

During the same period, campaign finance records show, Northwest's political action committee and its top executives - including Checchi and his co-chairman, Gary L. Wilson - donated $1.5 million to politicians, Republicans as well as Democrats, whose decisions could affect the airline.

According to an Examiner analysis, more than $500,000 went tolawmakers, mostly to those who serve on congressional committees that often pass on legislation affecting airlines, or who hail from Michigan and Minnesota, locales of Northwest's twin airport hubs.

The rest - nearly $1 million - consisted of "soft money" donations to committees controlled by the political parties and exempt from federal contribution limits.

Almost all big U.S. corporations lobby and make political contributions - especially heavily regulated firms like airlines, whose financial fate can turn on the fine print of a new federal law.

But no airline has donated more soft money than Northwest, says the citizens lobby Common Cause.

Checchi referred The Examiner's queries to his campaign manager, Darry Sragow, who said Northwest lobbied and made donations because it had no choice.

"Northwest has found itself in a position where it contributes in order to make sure it isn't ostracized or penalized when decisions are made affecting the airline industry," said Sragow.

Checchi's distaste for the process he saw as a business executive has made him a sincere advocate of campaign-finance reform, Sragow said.

"Al has very strong feelings about the need to eliminate special interest money in politics," he said. "That's why he is funding his campaign by himself."

But Checchi's decision to finance the race out of his own deep pockets also exempts him from the strict new campaign-finance limits imposed by voters last year as Proposition 208.

And details of Northwest's donations and lobbying during Checchi's tenure are noteworthy because of the way he has portrayed himself in his bid for the Democratic gubernatorial nomination.

Disputed record at Northwest

His campaign literature says Checchi worked his way through Harvard business school, then embarked on a meteoric career in high finance, playing a key role in the expansion of the Marriott hotel chain and the restructuring of Walt Disney Corp. in the 1980s.

In 1989 - along with Wilson, a Disney executive, and Richard Blum, husband of now-Sen. Dianne Feinstein, a likely candidate for governor herself - Checchi engineered the leveraged buyout of Northwest. What happened after that is fiercely debated.

Checchi says he and Wilson rebuilt a demoralized and inefficient corporation into "the second most-respected airline in the world (after British Airways)," steering it through a recession and making its employees wealthy through a generous stock plan.

Some union members, politicians and activists in Minnesota, site of Northwest's headquarters, recall the buyout as the bloodiest sort of corporate raid, in which Checchi and the others allegedly financed their purchase of the airline through deep pay cuts, layoffs and sell-off of valuable assets.

In 1991, when the Minnesota legislature was about to loan Northwest some $300 million for a needed cash infusion, opponents published a full-page ad in Minneapolis newspapers declaring, "Al Checchi took the most valuable airline in America and bled it dry."

Disdain for "old politics'

Checchi says he left Northwest with a zeal for public service, and disdain for what he calls "the old politics and the old ways."

He derides his only announced opponent, Lt. Gov. Gray Davis, as a "political careerist."

Checchi says that as a governor who didn't make his career in politics, he'd be free to "break with the status quo and challenge the special interests," as he put it in a Sacramento speech this fall.

In an interview on National Public Radio, he called for a ban on soft-money donations.

And in a Commonwealth Club speech this month, he decried the corrosive influence of big political donations, declaring, "We all suspect you get as much justice in society as you pay for . . . (that) our legislators are affected by these contributions . . . (and that) many public officials make appointments based on campaign contributions."

Checchi says that in eight years as head of Northwest he never sought a favor in exchange for a political donation.

"I didn't seek any special treatment" in exchange for political contributions, he said after his speech. "I have never asked for anything" from government in connection with a political donation, he said.

Looking for a break

But lobbying and campaign finance reports filed by Northwest during Checchi's tenure reflect many occasions when the airline made political donations while also seeking a break from the government.

One occurred in 1991, when the airline and its officials made $83,450 in contributions while lobbying for an antitrust exemption that allowed Northwest to obtain a $400 million cash infusion from the Dutch airline KLM.

A recent example came early this year, when in the final days of Checchi's tenure, Northwest began a furious lobbying effort to challenge terms of a new aviation treaty with Japan while also making some $215,000 in donations.

Last year, after Northwest had successfully lobbied the Clinton administration to win exclusive rights to fly nonstop from the United States to Beijing, Checchi gave $100,000 to a Democratic soft-money committee.

Over the years, Northwest has been such a high-profile lobbying force that one prominent Minnesota Democrat seemed nonplused by the good-government theme of Checchi's California campaign.

"Northwest clearly lobbies - they are a constant presence," said state Sen. John Marty of St. Paul. "Obviously, Northwest did get from the state legislature a megapackage, hundreds of millions of dollars in loans few years ago, and they were certainly asking for help then.

"Checchi may not personally ask for help; lots of times it's the lobbyists who ask for the help," he said, "but the PACs and lobbyists make the contributions which, given human nature, make the difference."

But Checchi contends Northwest didn't seek aid, said Sragow.

"Al's position is the help was offered by the state of Minnesota because they wanted to keep Northwest from moving out of state," he said.

Steadily increased political giving

The Examiner's analysis shows that Northwest and its top executives have steadily increased their political giving: from the relatively modest $83,450 in the 1991 off-year to a whopping $677,000 during the 1996 campaign.

The airline's donations to Congress seemed nonpartisan: While Democrats still controlled Congress, Northwest's donations favored them, 2-1.

Since the Republican takeover in 1995, donations to the GOP increased dramatically, so that now the split is nearly 50-50.

Among key recipients in Northwest's hub states of Michigan and Minnesota: U.S. Sen. Carl Levin, D-Mich., who last year ramrodded federal funding for a Detroit airport renovation project favored by Northwest; Rep. John Dingell, D-Mich., long a power on the House Commerce Committee, which reviews airline-related legislation; Rep. James Ramstad, R-Minn., of the powerful Ways and Means Committee; and Rep. James Oberstar, D-Minn., ranking minority member of a key aviation subcommittee.

When donating to politicians from other states, Northwest appeared to target congressmen whose committee assignments held power over legislation important to the airline's bottom line.

The records also reflect that Northwest and its executives have dramatically increased their soft-money donations, from less than $140,000 during the 1992 presidential campaign to more than $600,000 in 1996.

When President George Bush, a Republican, was in the White House, Northwest's soft-money donations favored the GOP by about 3-1.

Since President Clinton was elected, Democrats' share of the soft money increased. Checchi and his wife, Kathryn, gave $127,000 in soft money to Democrats; Wilson, Checchi's co-chairman at Northwest, gave nearly twice that amount to the GOP.

Checchi has donated to the other side, though. In December 1995, Checchi gave $1,000 to Republican presidential contender Bob Dole, and Kathryn Checchi gave $1,000 to another GOP candidate, flat-tax advocate Steve Forbes.

Sragow said Checchi's donations had been made independently of Northwest's. He said Checchi usually gave to Democrats whom he personally supported. Republican Forbes got a donation because he is a personal friend. The donation to Dole was made at the request of Wilson, who is Checchi's longtime friend and partner, Sragow said.

Increased lobbying

The reports also show a big increase in the amount of money Northwest spends on Washington lobbying, to a peak of $3.5 million in 1996. The company has spent $1.3 million so far this year.

The airline spent its lobbying money in many ways - from retaining former Gov. Jim Blanchard, D-Mich., and former Sen. Bob Packwood, R-Ore., as advocates, to booking the Four Tops to play for delegates at the 1996 Democratic National Convention and the Beach Boys to play for the GOP.

But all of it, reports show, was directed at obtaining changes in a long list of federal rules and proposed laws of vital interest to Northwest.

A key issue arose in 1991, when Northwest won its antitrust exemption that allowed it to bank $400 million from KLM. More recently, it has sought to block stricter clean-air rules for airplane cabins; failed to win a repeal of the federal tax on jet fuel; and sought to shape a series of new international aviation treaties.

Occasionally, Checchi has been personally involved in lobbying. In 1991, when airlines were buffeted by skyrocketing fuel prices, Checchi testified before Congress in what some lawmakers saw as an attempt to win direct federal subsidies.

"European carriers are now receiving cash infusions from their governments," Checchi told the House Public Works Committee, according to a Reuters account. "Do the Europeans know something that we don't?"

Sragow denied Checchi was asking for subsidies. He said Checchi's testimony was aimed at alerting Congress to the plight of the entire aviation industry during an economic crisis that saw seven airlines file for bankruptcy.

Last year, federal records show, Checchi personally donated $100,000 to a Democratic soft-money account shortly after Northwest had successfully lobbied the Clinton administration for the air route to Beijing.

According to the records, Checchi wrote two $50,000 checks to the Democratic National Committee in May 1996, days after Northwest began exclusive nonstop air service from the United States to the People's Republic of China.

To become the lone U.S. airline permitted to fly nonstop to China, Northwest had needed the White House's help: a change to the U.S.-China aviation agreement and a favorable decision from the Department of Transportation.

Federal reports show Northwest lobbied the White House, the State Department and the Department of Transportation on the issue, and Northwest's own political action committee donated more than $125,000 in soft money to Democratic committees during the same period.

Checchi made his donation after he was accompanied on the inaugural Detroit-Beijing flight by U.S. Transportation Secretary Federico Pena.

Sragow said Checchi's donation had been made in connection with a Democratic fund-raising gala in Washington, and had nothing to do with the China route, which had been awarded months earlier.

The Big Three automakers and other Detroit-area businesses supported Northwest's bid for the route, the campaign manager noted.

Northwest vs. California

In April, just as Checchi was resigning as Northwest's chairman to go into politics, his airline had already begun a frantic campaign to persuade the Clinton administration to reject a new aviation treaty proposed by Japan.

The treaty is supported by a coalition of American carriers eager to open the U.S.-Japan air corridor to competition for the first time.

The treaty's merits are hotly contested, but there is little question about the financial impact on Northwest if it were signed as now written.

For more than 40 years, Northwest has been the dominant U.S. airline in the Far East, largely because a 1952 treaty gave it near-exclusive rights to fly into Japan.

Today, analysts say a third of Northwest's annual revenues of approximately $10 billion comes from its Asian routes. Any treaty that allows other U.S. airlines to fly to Japan is certain to cut deeply into Northwest's revenues.

Northwest has claimed in full-page newspaper ads that the treaty is a short-sighted sellout of U.S. interests. It has called on the United States to hold out for total deregulation - "open skies."

But other airlines say Northwest knows Japan will never agreeto total deregulation. They accuse Northwest of trying to sandbag the treaty to protect its lucrative near-monopoly on air service to the Far East.

"Northwest has unrestricted rights to Japan," said Cyril Murphy, a treaty advocate and vicepresident for United Airlines, which can make only one flight to Japan for every six flown by Northwest. "Northwest has the best position in the market, and it's not in their shareholders' interests to change."

Treaty advocates say there's a California angle to the controversy that could be hugely embarrassing to Checchi if he were elected governor and held onto his Northwest stock, as he says he intends to do.

Advocates of the deal, including Gov. Wilson, say the proposed treaty would increase trans-Pacific airline competition, dramatically lowering airfares and increasing Japanese spending in California by as much as $1.9 billion per year.

Because even a 1-point drop in the price of Northwest stock can shave $11 million off his net worth, the treaty debate "would put Gov. Checchi in an interesting position," said Gary Principato, advisor to the airlines favoring the treaty. "I'm sure he's hoping the matter is settled long before the election."

Sragow said there was no inconsistency.

"Northwest is arguing for more substantial deregulation than the other carriers," he said. Ultimately, that would bring an even bigger boost to the California economy, he said.



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