Louis Armstrong New Orleans International Airport tries to land

New Orleans CityBusiness, Nov 13, 2008 by Jaime Guillet

Louis Armstrong New Orleans International Airport officials plan to lock in relationships with its 10 airline partners via leases -- a tool missing since Hurricane Katrina -- in an attempt to secure financing for facility improvements.

Sean Hunter, aviation director for the airport, and the New Orleans Aviation Board plan on finalizing leases with airline partners such as Southwest Airlines no later than Jan. 1 as he gets his ducks in a row for renovating major sections of the airport.

"I feel our community needs and wants new facilities at the airport," Hunter said. "One way to do that is have a good bond rating and get good financing, and we have good partners in the airlines to do that. We need a lease ... and the incentive for airlines to enter a lease is getting cheaper rates."

The airlines pay $8.37 per passenger based on a "rates by resolution" model, which is generally considered by the industry to be more unfavorable than a lease because the airlines have less say about their facilities, Hunter said. That amount includes the airlines' landing fee and rent.

The aviation board was forced to establish the rate by resolution after Katrina's devastating destruction. Armstrong had five-year leases in place since 1999 and was renegotiating them in 2005 when the storm hit and changed everything about the New Orleans airline market, he said. The board created an incentive of cheaper rates to coax the airlines back but Armstrong has been operating at a deficit for the past three years.

That's going to stop in 2009, says Hunter.

"We've got to get a better bond rating so we can refinance and lower our interest costs and seek financing for capital improvements," he said.

Bond owners like airports to have leases with the airlines because if, for example, an airline goes bankrupt, it is easier for the airport to collect the debt quickly, Hunter said. Without a lease, bankruptcy court considers an airport an unsecured creditor and the facility is the last to get paid.

"We know we have a few airlines that (haven't) signed on right away," Hunter said. "We're working with them. It has to be done by Jan. 1 anyway -- the rating agencies are demanding it. If we can't get bond insurance, we can't sell them -- or no one will want to buy them -- and we'll pay a lot of interest costs."

If airlines refuse a lease arrangement, they will be forced to pay a higher per-passenger price.

Chris Czarnecki, Southwest's property manager responsible for negotiating the lease with the airport, says concessions with the airport have been extremely positive and he expects a finalization soon.

"We've been actively involved in the agreement process since February," Czarnecki said. "We're anxious to get it in place. It'll lower our cost of doing business at the airport and in this case it is known what our costs are in a given year."

Although there is no "one size fits all" lease, at the end of the day airlines are looking for efficient airports with the cheapest costs, said Steve Lott, spokesman for the International Air Transport Association, an international trade association for airlines.

"It depends on the airline and its relationship to a certain market so it can make sense for one and not another," Lott said.

He said airlines don't have much say about details such as their facilities, concessionaires or renovations when they don't have a lease.

Hunter's planned improvements heading into 2009 and beyond include:

- expanding Concourse D;

- replacing Concourses A and B, which can't service aircraft larger than 737s;

- building Concourse E;

- installing a new copper roof visible from Downtown; and

- consolidating rental car facilities into an onsite location.

Hunter said the majority of airlines will likely sign the leases despite grappling with some significantly hard times.

"Airlines are apprehensive about capital improvements because of (consumer) demand, costs, et cetera," said Hunter. "They want airports to put everything on hold but we can't do that. It's happened too many times. We're five or six years behind where we should be, which is not anyone's fault or discredit. We had two major events happen. It's my job to get the airport on track and I'm going to start with getting my partners -- the airlines, concessionaires and rental car folk -- on board.