Fading Champion?

Champion Air, which transports professional sports teams and vacation travelers, risks going out of business in 2008 unless it secures new investors and charter customers.

Champion CEO Lee Steele wrote in a recent letter to federal mediators that Champion foresees the loss of "all contract revenue" from current flying contracts by Aug. 31.

The Bloomington-based Champion is in the final months of its contract to fly 13 National Basketball Association teams. In addition, Northwest Airlines is phasing out Champion as a charter carrier for MLT Vacations, a Northwest subsidiary that markets air and hotel packages to leisure travelers. MLT represents about 70 percent of Champion's flying.

"The NBA contract ends in 2008 and will not be renewed due to Champion's inability to upgrade to newer aircraft," Steele wrote in an Oct. 4 letter to the National Mediation Board that was obtained by the Star Tribune.

The MLT and NBA business represents the vast majority of Champion's flying, with the rest coming from other charter flights.

Champion operates an aging fleet of 16 Boeing 727s, which require three-pilot crews. Ten planes are configured with 173 seats for leisure charters, while six planes have 59 seats for VIP trips, including NBA flying.

Steele implored the mediation board to place pilot contract talks on hold as he focuses on "seeking an investor who can be persuaded to finance a new fleet and a modified business plan."

He wrote: "The lower [post-bankruptcy] costs at Northwest, MLT's decision to shift its business away, the NBA's desire for newer aircraft, and the burden of maintaining and trying to market an aging and inefficient B727 fleet have created a perfect storm."

In 2006, Champion lost $488,000 on operating revenue of $155 million, according to a report the privately held company filed with the Department of Transportation.

Champion had net income of $3.3 million in 2005, but this year it is on pace to record deeper losses than it did in 2006. For the first half of this year, Champion lost nearly $400,000, compared with a profit of $1.5 million in the first six months of 2006.

Through spokesman Jon Austin, Champion's CEO declined an interview request this week.

"We will need to find new business opportunities to replenish our client roster and to fuel growth opportunities," Austin said. "This is particularly important to us in the coming year as many tour operators -- including some of our longstanding clients -- are increasingly using scheduled carriers for the travel portion of their packages."

Susan Worwa, a spokeswoman for MLT Vacations, said an increasing number of passengers prefer to book their vacation travel on scheduled carriers rather than charters. For example, she said, someone who books a "Worry-Free Vacation" package and takes a regular Northwest flight can earn frequent flier miles, which aren't available on a Champion flight.

In October, MLT stopped using Champion for flights from Detroit, and Steele notified employees in May that all MLT flying will end during 2008.

Ben Hirst, Northwest's senior vice president of corporate affairs and administration, declined to discuss Champion and MLT flying. In a statement, Hirst said, "Charter flying is less than 1 percent of Northwest's passenger business, including charters flown for MLT Vacations."

Hirst said Champion will operate many MLT charter flights in 2008. He didn't address MLT's plans for 2009.

Steele told the mediation board that Champion's relationship with MLT has "fluctuated wildly." He said, "One moment it seemed the flying could be salvaged; the next moment it appeared the flying was over."

Without a dramatic turnaround in demand for Champion's services, Steele warned, "August 2008 portends to be the cessation of operations."

Employees are leaving

Many employees have responded to the precarious state of Champion's business by walking away. Forty percent of the 142 pilots at Champion in January have departed during the year. Some have been replaced, leaving 107.

Matt Marsh, chairman of the Champion branch of the Air Line Pilots Association, appeared before Northwest pilot leaders in October, because he wants some of his pilots to have the ability to work for Northwest.

"If pilots were given an opportunity to transfer to Northwest Airlines if Champion does not survive, many pilots would stick with Champion throughout the next year," Marsh said.

Champion also has been losing key executives, including former CEO Steve Spellman, who resigned for an executive post at Sun Country Airlines. Champion's chief financial officer and director of flying also departed this year.

"I believe that Northwest Airlines is the largest factor in whether or not Champion will exist," Marsh said.

Northwest and Minnesota Twins owner Carl Pohlad sold Champion to five of its executives in 2003. That transaction was cited in Steele's letter to the mediation board, when he said that "Northwest distanced itself from Champion by changing its position from owner to debt holder."

Steele wrote that during Northwest's bankruptcy, Champion "made several attempts to reinvent itself in an image that would appeal to Northwest, such as a new feeder carrier." But "when Northwest chose to create Compass [to fly large regional jets], that plan was dashed."

Champion's Austin said that management remains optimistic that it will attract new customers and capital.

Steele said in October that Champion is focused on fulfilling its obligation to the NBA. Teams it carries include the Los Angeles Lakers and Philadelphia 76ers, but not the Minnesota Timberwolves. He emphasized the need to complete the 2008 NBA contract because "a failure would ruin Champion's reputation and eliminate any hope of attracting investors."

Liz Fedor • 612-673-7709