MARIANAS Southern Airways is still offering inter-island flights even as Gov. Arnold I. Palacios reiterated that there are no funds available for the $8 million sole-source, federally funded contract that former Gov. Ralph DLG Torres signed with MSA last year.
In his March 1 letter to the governor, MSA Chairman and Chief Executive Officer Stan Little said their reputation “of being a reliable, safe, and affordable airline has never before been impugned like it was by your press release” that announced the termination of the contract.
Little said Palacios’ “criticism of this being a sole-source contract, while factually correct, is patently unfair, as the criteria for receiving such a contract was satisfied under [the law].” The contract was also signed by the CNMI attorney general.
Little said the “needless demonization lacks an understanding of the current state of the global airline industry. WE ARE THE ONLY AIRLINE IN THE WORLD THAT WOULD HAVE TAKEN THIS RISK…. I am completely confident that no outside airline will ever again take a risk on inter-island travel within the CNMI. (Hopefully this is not the goal of your press release, though that certainly seems plausible.)”
Little said Palacios’ claim “that this is a ‘lucrative’ contract has actually amused many of our colleagues in the airline business, since it is readily apparent to anyone in the industry that, even with the incentive payments, we are and will continue to lose tens of thousands of dollars each month until these routes are fully mature. Please note that one single route in Nebraska or Arkansas or West Virginia is more profitable for us than all our flying in the CNMI.”
Even so, Little added, “we still believe in the original business plan that we built…. We believe that 18 months of government subsidy and verbal support (or silence) from your administration can lead to a sustainable, long-term air service solution that can last for generations.”
Little said they are not seeking an apology, but rather “a forum to determine if either side wishes to find a path forward.”
He proposed any of the following solutions:
“1) Rescind your termination notice immediately and pay all invoices that have been billed thus far. Then issue a public statement of support. No lapse in service; or
“2) Pay 50% of the invoiced amounts within the next five days and we will continue operations for 30 days while we negotiate a new long-term arrangement; or
“3) Pay the entirely of the contract up front and we will commit to 24 months of uninterrupted flying instead of the contracted 18 months.”
Little said, “Should a mutually beneficial conclusion [not be reached] by March 10, we will be forced to terminate scheduled service and begin the [process] of dismantling our infrastructure.”
As of Tuesday, MSA was still providing inter-island flights.
No funds
In his reply to Little dated March 10, Gov. Palacios said he had referred the matter to acting Finance Secretary Tracy B. Norita who reiterated her Feb. 21, 2023 letter “that there are no funds available for the contract.”
The governor said similar letters of termination have been sent to other vendors and contractors for the services supposedly funded by the American Rescue Plan Act.
Palacios said Finance is conducting a “thorough review of the contract terms and related documents” along with Finance’s records and MSA’s documents and reports required under the contract.
Little, in his letter, asked the governor to have his staffer verify account number AR88990002.
“Should there be no funds in that account, please let us know as that would be a material misrepresentation of the contract and we would pursue legal action against the prior administration.”
He also hopes that Palacios would direct the attorney general to conduct a criminal investigation, “if there are really no funds in the account.”
Following Gov. Palacios’ termination of the contract, MSA raised its one-way airfare to Guam to $229 and $269 from $99.
The contract provided ARPA-funded subsidies to MSA so it could offer low inter-island airfares.
