CNMI Gov. Arnold Palacios terminated an $8 million sole-source contract with Marianas Southern Airways inked by then Gov. Ralph Torres meant to boost the economy using American Rescue Plan federal funds to provide air and cargo-passenger service in the Marianas.

Keith Stewart president of the airline now has regrets.

"If I knew that this would have happened we would have never started the airline," he said. "I am not exactly sure what happened here. I am sensing it might be more political than anything. Unfortunately, it is going to be the people of the CNMI that is going to be hit the worst."

Stewart said Torres approached him in December 2021 when Star Marianas, which used to be the only inter-islander airliner, temporarily halted its flights.

"There is no odd deals here," he said. Nothing going on. It was unique. The situation was there was an emergency issue and what the administration at that time was doing was going and solving the issue to ensure that there would be another airline here that could go and provide services if something ever happened."

But the president of Star Marianas said it's not that simple. Shaun Christian said ongoing litigation in local court about alleged illegal landing fees, terminated airport use agreements, and the pressure to transport COVID-positive patients from Rota and Tinian to Saipan without the promise of quarantining his pilots created a perfect storm they could not fly in.

"The risks associated with operating at that time in the CNMI led us to temporarily suspend operations until we could try and get some of these issues resolved," he said. "What we find to be rather interesting is that a sole-source contract was entered into with a local entity that does not even have an air carrier certificate this M.P. Enterprises."

M.P. Enterprises and Southern Airways each own half of Marianas Pacific Express, doing business as Marianas Southern Airways. But Stewart said the deal is by the book, having been reviewed by the attorney general's office, Division of Procurement and Supply, and the Secretary of Finance.

"It is extremely disappointing that the governor had the letter sent canceling the agreement," he said. "We are still looking and do not believe that ultimately that will be the end decision that the administration will make."

He believes the use of ARP funds was appropriate. And their intention was to revive the economy.

"Canceling this contract or not going and re-instituting it we think will be a big mistake," Stewart said. "Just the first six months or so of service we've flown 10,000 passengers on our planes. We've saved CNMI passengers over $600,000 when comparing our rates to competitive rates that were there."

But now MSA's savings are at risk. They said they notified Palacios in December during the transition that they needed funds. The last payments totaling $2.4 million were made in August and November.

"Because of the lack of payments we have not moved forward with purchasing more planes," Stewart said. "We actually had contracts signed and stopped them as a result of lack of payments."

He said they are losing money now.

"There's no other airline in the entire world that would have come and done what Southern and us have done," Stewart said.

He expects to meet with the governor today after speaking with legislators this week.