Star Marianas sues MSA over $8M gov’t contract

Despite having dissolved its operations over a year ago, Star Marianas Air Inc. has filed a federal lawsuit against Marianas Southern Airways and its president Keith Stewart, alleging violations of the U.S. Sherman Antitrust Act.

Last Tuesday, Star Marianas, through attorneys Richard Richards and Mark Scoggins, filed a lawsuit against Marianas Southern Airways and its president with the U.S. District Court for the NMI.

Aside from them, Star Marianas also named Southern Airways Express LLC and Marianas Pacific Express LLC as defendants.

Star Marianas has filed six counts of violations of the Sherman Act against Marianas Southern Airways pursuant to an $8-million sole source contract between the airline and the CNMI government under the previous administration.

The Sherman Act aims to increase economic competitiveness by outlawing trusts, monopolies, and cartels.

As relief, Star Marianas is asking the District Court to restrain the defendants from establishing any similar agreements that unreasonably restrict competition and create a “conspiracy to monopolize the CNMI airline industry.”

Star Marianas also wants the court to award them damages in an amount to be determined at trial, and other relief the court may find just and proper.

According to the lawsuit, on March 21, 2022, Marianas Southern Airways executed a sole-source contract with the CNMI government for receipt of federal funds through the American Rescue Plan Act in the amount of $8 million.

Marianas Southern Airways accepted a sole-source procurement services contract from then-secretary of Finance David DLG Atalig.

Beginning August 2022 until April 2023, Marianas Southern Airways existed as the main competitor to Star Marianas in the CNMI.

Star Marianas said at the time, it was the primary provider of commercial passenger flight travel between Saipan, Rota and Tinian.

“Marianas Southern Airways, by executing said contract, entered into a predatory pricing scheme with the other defendants, to use ARPA funding to fix prices below costs in the markets served by Star Marianas with the intent of causing injury to Star Marianas’s business, and with the goal of running Star Marianas out of its free market business,” the lawsuit stated.

It added that the purpose of the contract was to “incentivize” Marianas Southern Airways to provide inter-island passenger and cargo service in the Marianas.

“This incentive framework will take the form of an Initial Incentive Fund, a Flight Incentive Program, and Government Related Pricing,” the lawsuit stated.

Pursuant to the Flight Incentive Program, during the incentive period, Marianas Southern Airways agreed to provide at least 42 weekly departures serving Saipan, Tinian, Rota and Guam.

Marianas Southern Airways was also contracted to provide same-day connectivity flights to Saipan with United Airlines’ Honolulu-Guam flight.

“Under the Flight Incentive Program, Marianas Southern Airways would offer reduced fares, as low as $99, from Saipan to/from Guam to passengers as a set-off and attempt to monopolize the CNMI’s airline industry, when the fare from Saipan to/from Guam cost between $229.00-$269.00, following the contract’s termination,” the lawsuit stated.

The lawsuit further states that as a recipient of ARPA funds, Marianas Southern Airways was obligated to comply with U.S. Congress’ stated purpose, federal rules, and regulations.

“Because it accepted ARPA funds, Marianas Southern Airways was required to utilize received funds for its intended purpose, not as a means of creating unfair treatment within the several islands in the northwestern Pacific Ocean’s airline and air travel industry,” said the lawsuit.

The contract also allowed Marianas Southern Airways to administer a Corporate Discount Program for official CNMI government travel on any flight operated by the airlines, the lawsuit added.

Through the contract, Marianas Southern Airways allegedly provided over 10,000 passenger flights and saved nearly $600,000 through reduced airfares.

Star Marianas argues that because of the contract between Marianas Southern Airways and the CNMI government, Star Marianas specifically experienced approximately $100,000 per month reduction in revenue, a significant loss of passengers, with a total loss of revenue estimated between $1.5 million and $2 million.