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McElroy impressed by Bemidji Aviation operation

Minnesota's top economic development official plans to learn firsthand this week the state of the economy in northwest Minnesota.

"I'm hoping that high farm prices and high values for crops in virtually every crop we have will mean there's money coming into the economy from agriculture," state Employment and Economic Development Commissioner Dan McElroy said in an interview Tuesday.

"I don't know about manufacturing yet -- I'm looking forward to learning," he said on Day 1 of his tour throughout northwest Minnesota.

McElroy first learned about regional air travel, arriving an hour late on a commercial Northwest Airlink flight after mechanical problems were solved.

But then he walked next door to Bemidji Aviation, Bemidji Regional Airport's fixed-based operator, where he received a tour and company briefing.

"I was very impressed," McElroy, who used to own a travel agency, said after the tour. "I've been familiar with the company for a long time, but didn't know they were as large as they are, they have has many airplanes, that they do as many things as they did. So I was very impressed. What nice people."

Bemidji Aviation offers a charter flight service but has considerable business in moving freight, with contracts with both UPS and DHL Express U.S., and in aircraft maintenance. It employs more than 40 full-time workers, General Manager Cori Rude told McElroy.

As Bemidji Regional Airport's FBO, Bemidji Aviation also provides fuel, maintenance, hanger rental, plane rental, flight training, a National Alamo car rental locally owned franchise, pilot supplies and a pilot lounge.

Bemidji Aviation has both a cargo fleet and passenger fleet of planes, with about 16 flights each weeknight, with scheduled cargo service in three states, moving cargo to Minneapolis-St. Paul International Airport, Rude said.

McElroy also met both founders of the firm, Mark Shough, vice president of maintenance, and Larry Diffley, company president.

Aside from reeling from higher fuel costs, Diffley said competition is becoming fierce.

"DHL is pulling out, and UPS is restructuring," he told McElroy. "Competition is tough as everyone wants to diversify. We're buried with too many airports."

German-based DHL announced in late May that it is restructuring its DHL U.S. Express business by working with UPS for airlift capacity and reducing costs in its ground infrastructure. DHL and UPS agreed to a contract that allows UPS to uplift for DHL Express U.S. domestic and international shipments within North America.

Diffley said the company is also affected by the lack of an all-weather navigation system, now threatened by the 2008 Legislature removing $15 million from an airport improvement fund that would have funded a new system at Bemidji Regional Airport.

And, he said state sales taxes on parts affects Bemidji Aviation's maintenance operation, while competing operators in South Dakota don't pay sales tax on equipment purchases and parts.

State registration fees also put Minnesota at a disadvantage, Rude told McElroy. The company's Beech 99 aircraft costs $3,300 annual to be registered in Minnesota, but only $150 in North Dakota and $75 in South Dakota.

McElroy told them that a state task force is now looking at such regulatory barriers to business.

After visiting Bemidji Aviation, McElroy toured Wells Technology in Eckles Township and met with Mike Bongo of the Northwest Indian Opportunities Industrialization Center.

Also Tuesday, he was scheduled to visit TEAM Industries in Bagley, Homark Homes in Red Lake Falls and the Occupational Development Center's corporate headquarters in Thief River Falls, said Kari Howe, DEED economic development program specialist for northwest Minnesota, who is guiding McElroy.

Wednesday finds them at a breakfast meeting in Warren and then visiting business people and small businesses in Hallock and Lancaster before touring Polaris in Roseau and Marvin Windows in Warroad.

Thursday will have McElroy and Howe making several business stops in Baudette before returning to Bemidji, via a tour of Anderson Fabrics in Blackduck, Howe said.

"Some of the businesses are recipients of state Job Skills Partnership grants and others are in JOBZ (Job Opportunity Building Zones) areas," Howe said. "A couple of businesses are emerging businesses."

For some, it'll be the first time McElroy has visited.

"I won't know until I find it out," he said when asked what hopes he had for his visits. "I want to listen to people, tell them what is happening with some economic development issues, but mainly listen and learn."

He will meet some people he hasn't met before, he added. "I've never been to Red Lake Falls, haven't been to Kittson County in a very long time. This is a big state, and it's not all the same. So it's important to get out and listen to a lot of people."

Some businesses in Lancaster, and Polaris, are in JOBZ sites, McElroy said, "but many have not. They're connected to the community, not necessarily the government, and I want to learn."

McElroy had asked the 2008 session of the Legislature for $70 million for Gov. Tim Pawlenty's SEED proposal -- Strategic Entrepreneurial Economic Development -- which mostly would benefit rural small businesses. Of the total, $50 million would come from capital bonding and $20 million from the general fund.

The Legislature pared that down, giving $7.8 million for a redevelopment grant program to provide assistance in redeveloping commercial, industrial and residential sites; $7 million for rural Minnesota business development infrastructure; and, $9 million for bioscience business development infrastructure.

McElroy had asked for $20 million, $20 million and $10 million, respectively, for the three programs in bonding. General funds were asked for various programs for new capital for rural businesses and for programs for sustained competitive advantages.

"We will keep working at it, probably re-explain some of it," McElroy said. "We're told that it was too complicated. Somebody asked if we lost on SEED, and I responded that you haven't lost if you haven't quit. And we haven't quit."