With $5.4M loan, Sun Country moves closer to hangar-to-office makeover

The Metropolitan Airports Commission (MAC) will lend Sun Country Airlines up to $5.4 million to turn one of its hangars into the airline's headquarters so long as it promises to stay there.

Details of a tentative 10-year lease agreement were posted on the commission's website Thursday ahead of a special meeting next week for commissioners to consider the deal. Officials hope it helps solidify Sun Country's commitment to grow its air service at Minneapolis-St. Paul International Airport.

Sun Country currently leases two hangars on the airport's western edge. The company wants to turn Building C, or Hangar 2, at 2005 Cargo Road, into the new headquarters.

Sun Country began leasing the space in 2012 with the intent of using it for aircraft maintenance. But the hangar turned out to be too small for the airline's Boeing 737 planes.

The airline has since been using the hangar bay to maintain ground-service equipment and office space around it to conduct flight-attendant training and house its system-operations center.

Under the arrangement with the MAC, Sun Country will hire and manage the construction contracts to remodel the approximately 90,000-square-foot building. The commission will then reimburse Sun Country for the remodeling up to $5.4 million in the form of a loan. The airline will repay the loan at 5.75 percent interest over nine and a half years.

If Sun Country moves its headquarters out of the Twin Cities before the end of 2029, its annual facility rent will rise to $828,000 for the remainder of the lease, compared about $604,400 if it keeps its headquarters in the building. If it terminates the lease early for any reason, Sun Country will also be obligated to pay any outstanding debt for the renovation.

The airline will pay MAC a $500,000 fee at the expiration or termination of its lease so the airport can turn the building back into an aircraft hangar.

The hangar was originally built for the former Mesaba Airlines, which operated smaller, regional-sized aircraft, like the 34-seat Saab 340 propeller plane and CRJ 200s, said Brian Peters, assistant director of air service business development for the MAC.

The plans call for nearly 47,000 square feet of finished office space, which could hold 416 workers. The airline has 1,444 employees with 97 percent of those based in the Minneapolis-St. Paul region, according the MAC documents.

Because this deal changes the hangar lease from a month-to-month to a 10-year agreement, Sun Country will be paying about $9,000 less per month for it. The move will also saves Sun Country the cost of renting its current headquarters space from the airline's previous owner, brothers Mitch and Marty Davis.

Sun Country is in the midst of transforming its business model from a small, mid-price airline into an ulta-low-cost carrier with national growth aspirations. Funds associated with Apollo Global Management purchased the airline early this year and infused it with $90 million to invest in new airplane seats, new IT systems and aircraft. Earlier this week, Sun Country unveiled the first airplane it's ever purchased in what will one day be an entirely owned fleet.

The commission and Sun Country have been negotiating terms of the deal for six months, Peters said. "Sun Country is a growing airline and this helps further commit them to the MSP region," he said.

The MAC expects to finalize the deal by the end of the year. Sun Country declined to comment Friday. A spokeswoman last week said the airline was looking to consolidate its office space.

The new lease terms, if approved by the MAC board and the airline's board of directors, will go into effect Jan. 1.

Kristen Leigh Painter • 612-673-4767