12 Pilots And Two Flight Attendants

12 Pilots And Two Flight Attendants

The Sun Country Story

The Sun Country story dates back to 1982—at least the part that everyone can agree on. This is a business that has been through so many incarnations that even its most veteran employees tell slightly different versions of its history.

Twelve Twin Cities-based pilots and two flight attendants from the defunct Braniff International Airlines banded together with a loan from MLT Vacations to form a charter airline carrying passengers from the Upper Midwest to warm-weather and casino destinations. MLT owned a majority of the carrier.

Charter airlines—a niche that is no longer vibrant in the industry—sold seats to travel agencies, tour operators and vacation packagers, who then bundled them with lodging to sell to the public. The airline and its bundling partner shared the risk of unsold seats. Sun Country did much of its early business with MLT (purchased by Northwest Airlines in 1985) and Laughlin, Nevada’s Riverside Casino.

In 1985 NWA Inc. began trying to buy Sun Country, which culminated in a court battle. In 1988, Minneapolis banker B. John Barry, acting as a white knight for Sun Country’s non-MLT shareholders, bought a majority stake in the carrier and continued incremental growth. Sun Country added charter flying for the U.S. military, a lucrative, low-risk niche.

Competition begets chaos

Sun Country was consistently profitable through the early 1990s. In 1995, faced with a glut of aircraft but very little summer business, it began limited scheduled service to major cities. Northwest reacted by having its MLT division cut back its business with Sun Country, culling 25 percent of SY’s revenue. “MLT thought they could put us out of business,” says Jim Olsen, one of SY’s founding pilots and longtime CMO.

The turmoil made Barry nervous, says Olsen, and he put the carrier up for sale. The buyer was the La Macchia family of Milwaukee, owners of vacation packager The Mark Travel Corporation, already responsible for 30 percent of Sun Country’s revenue. The new owners wanted a change in strategy.

The decision was made to convert Sun Country from a charter to a scheduled airline. “We felt you could combine business markets and warm-weather destinations and fly over Minneapolis as a hub,” says David Banmiller, Sun Country CEO from 2000 to 2002. “It provided better aircraft utilization and more flexible pricing to business travelers,” who faced some of the highest airfares in the nation at MSP due to Northwest’s fortress hub.

The problems, according to Olsen, were that Sun Country lacked a distribution system to sell tickets outside the local market and it made a strategic error in flight scheduling. He says consultant Seabury Group told the airline to orient its schedules for the convenience of East and West Coast travelers, rather than MSP-based flyers.

If Sun Country had been surprised by the loss of MLT’s business when it challenged Northwest with a few summer flights, it should have had some idea what was in store for it as the new Sun Country took on NWA to major East and West Coast business centers.

Northwest was long known as one of the most aggressive of the major airlines at protecting its hubs from discount competition, typically reacting by flooding those routes with seats at fares as low or lower than that of the competition.

Between 1991 and 2001 Sun Country lost more than $123 million.

“They challenged Northwest’s dominance, and it reacted by matching schedules and deeply discounting,” says Minneapolis attorney Jay Salmen, who held titles of SY president and/or CEO from 2001 to 2006 and again from 2007 to 2008. After the 9/11 aviation shutdowns, the airline filed for bankruptcy. Banmiller blames 9/11 for the failure, but Salmen disagrees. “I know the La Macchias had put the airline up for sale prior to 9/11. Trying to compete with Northwest was the flaw in their business strategy.”

Olsen insists the strategy was viable, but he points to the distribution and scheduling problems. (Attempts to reach Bill La Macchia Jr. were unsuccessful.)

Minneapolis attorney Bob Daly, one of the airline’s founders, cobbled together an investor group to resurrect Sun Country in 2002. “When it was brought out of bankruptcy, the board wanted to return it to a charter airline, but we learned that the market had changed,” says Salmen. “So we created the hybrid model—concentrate on leisure travelers and market the flights to travel wholesalers (such as Hobbit Travel) who would buy blocks of tickets.

The bulk sales were designed “so Northwest couldn’t figure out what we were selling our tickets for,” says Olsen. SY reoriented its flying around MSP customers and began selling on a global distribution network.

“Our goal was to try to pick destinations that would not eat into Northwest’s key business markets,” Salmen continues. “We didn’t fly to Chicago, New York LaGuardia. We wanted to fly under Northwest’s radar.”

Sun Country leased modern 737s to replace its aging 727s and DC-10s, and it began hiring anew, but the business made money only in 2003, reporting losses in every other year until it was again sold, to Tom Petters in late 2006.

Petters left professional management in charge of the airline, and it was never a significant player in his Ponzi scheme. Nonetheless, Sun Country continued to lose millions and was put into bankruptcy in late 2008 to avoid having its assets scavenged by Petters creditors. To keep the airline’s FAA operating certificate active, it began flying small numbers of charter flights to Laughlin, Nev., a return to its roots of 25 years earlier.

Seeking smooth air

Salmen hired industry veteran Stan Gadek to run Sun Country. The company gradually returned to scheduled flying to warm-weather and urban leisure destinations, while also shuttling troops around the globe for the U.S. military. After losing $241 million between 1996 and 2008, with only two profitable years in 1998 and 2003 (net income $15.67 million), the airline was clawing its way out of the Petters estate.

Sun Country became profitable in 2009 and has remained so since. As Gadek and Petters’ trustee Doug Kelley searched for a buyer, they had not only a profitable airline to sell, but a beloved local asset. “My area of concentration in law has been Chapter 11,” says Salmen. “I’ve been through it twice with Sun Country. Never before had I heard from a bankruptcy judge, ‘We’ve got to make this work.’ ”

Salmen says there were “four viable bidders” for the airline, “principally individuals with high net worth.” Kelley says each “had a high degree of interest in anonymity.” Kelley accepted the best offer, $34 million, from the Davis family of Le Sueur, owners of Cambria Holdings (the countertop maker) and Davisco Foods International (a large dairy and whey producer). The sale closed in mid-2011.

Marty Davis became chairman of Sun Country and retained Gadek as CEO. “I negotiated with Marty,” says Kelley, “but I don’t think he ever told me why his family wanted the airline. My goal was to get it to a buyer that would continue to operate it and keep the jobs.” “Why did they buy the airline?” says Joe Battaglia, business agent for Teamsters Local 120, which represents Sun Country’s 350 flight attendants. “We have no clue.”

Marty Davis declined to be interviewed.

Cambria’s marketing magazine is distributed onboard Sun Country flights, and employees report Marty Davis was familiar with the airline from trips to his home in Palm Springs, Calif. Beyond that, the source of the family’s interest in the airline remains a mystery.

Two years into Davis family ownership, and despite continued profitability, the airline’s board fired Gadek, who left abruptly and without comment, prompting speculation about what led to the end of his tenure, given the airline’s strong results. Gadek declined to be interviewed.

“My understanding is there was a difference in the strategic direction of the company,” says Jake Yockers, a Sun Country pilot since 1990 and spokesman for the airline’s unit of the Air Line Pilots Association. “It happened very quickly at a board meeting, we heard.”

Gadek was succeeded by John Fredericksen, a 10-year Sun Country veteran and its general counsel. Sun Country has remained modestly profitable under Fredericksen and will add its 20th and 21st airplanes this fall.

SY is nearing its all-time peak of flight operations, employee head count and revenue (see “Under The Radar”). Though travel industry analyst Henry Harteveldt notes “there is something about an airline that separates rational owners from their money,” for now the Davis family seems be the airline’s first real winner since B. John Barry.