As American Struggles Miami International Builds Airline A 17 Billion Terminal
Written by Paola Iuspa on February 27, 2003
By Paola Iuspa
American Airlines’ future is clouding as the Miami-Dade Aviation Department reaches the quarter-way mark on a $1.7 billion terminal for the airport’s largest carrier.
With 192 flights a day, American last year served almost 52% of the 30 million passengers at Miami International Airport, aviation officials said.
But its parent company, Dallas-based AMR Co., lost about $3.5 billion in 2002 and $1.8 billion the year before, company officials said. AMR’s stock price performance is significantly below market and some fear it may follow the steps of United Airlines, which recently filed for bankruptcy. Chapter 11 allowed United Airlines to continue operations while developing a plan of reorganization. But if a company chooses Chapter 7, another route to bankruptcy, its business would shut down at once.
American is not the only airline facing tough times.
All the traditional network carriers at Miami International are now struggling to find a new business model, said Angela Gittens, Miami-Dade aviation director.
"By the end of this year," she said, "those airlines will have lost more money than they earned in the five best years commercial aviation ever had, from 1995 to 2000."
Airlines and transportation analyst Ray Neidl, with Blaylock & Partners of New York, an investment banking and securities brokerage, said AMR bankruptcy is not imminent.
"There is a long way to go," he said, "before American Airlines goes bankrupt.
"Miami is one of its key hubs to handle passengers to the Caribbean and South America. Miami is the key to their success. And even if they declare bankruptcy, it does not mean they will stop flying."
But Miami-Dade County may have reasons to be less optimistic, since Miami International Airport is footing most of the bill for the $1.7 billion North Terminal, now under construction.
To be occupied by American Airlines and American Eagle, the terminal is scheduled for completion in June 2006. Of the estimated cost, about 55%, or about $948 million, is already under contract and about $481 million worth of work is already in place, said Carlos Bonzon, aviation department deputy director for the airport’s expansion program.
American Airlines is responsible for pitching in $200 million, of which $46 million would go to build an American Eagle facility. The rest would pay for construction of American Airlines’ clubs, lounges, equipment and airport systems for the exclusive use of American, Mr. Bonzon said.
"Payment will take place as facilities are built," he said.
If financial problems force American to cease operations, such proposed amenities could be scratched.
Aviation consultant Rick Elder, Miami-Dade aviation director in the 1990s, when the North Terminal expansion was being studied, said elected officials took a big risk years ago by agreeing to American’s demand for a larger terminal.
"When the airline was demanding its own terminal and asking the airport to build it so American could rent it from us," he said, "I was watching the red ink flow all over the industry, especially from American."
Mr. Elder said he is currently writing a book detailing many of the negotiations that took place.
American began in 1991 pushing for a mega-concourse, estimated to cost about $500 million, said Mr. Elder, who opposed the expansion. But eventually elected officials and American teamed up behind the new terminal, whose price tag ballooned from $500 million in 1991 to the existing $1.7 billion, he said.
While the airport is funding the job with airport-generated revenues, anyone flying to and from Miami International is paying for the construction as well. To pump up revenues, the aviation department had to increase airline ticket counter rentals, a ticket tax and airline landing fees, he said.
"Those expenses are passed directly to the passengers," he said.
The current North Terminal is part of the airport’s $4.8 billion capital improvement program, which is under way and aimed at serving more passengers at a faster rate, aviation officials said.
Ms. Gittens said if American Airlines needed to shrink its operations as a result of any corporate reorganization, the North Terminal project could be used to increase capacity and efficiency for other carriers.
"Those elements that are specifically designed for a one-airline connecting operation, such as the people mover and the baggage system, would not be needed," she said, referring to items designed explicitly to meet American Airlines’ needs.
The current design consists of 3.2 million square feet, of which 1.9 million square feet is new construction and the rest is remodeling of existing space, Mr. Bonzon said. The terminal will be 1.3 miles long with a four-station people mover, he said.
But if American cut its services in Miami, it would be hard to find carriers willing and able to fill the space now being built for it, Mr. Elder said.
"The industry is in crisis," he said. "It is not the ’90s anymore, when we successfully absorbed the void left by Pan Am and Eastern Airlines when they went bankrupt. Back then, we had airlines waiting to come to Miami International Airport. The economy was thriving and the future was looking bright."
Today, the sluggish economy, high fuel prices, concerns over terrorism, a drop in tourism, new security costs since 9/11 and the possibility of a war in the Middle East are some of the factors driving AMR to its current financial state, which could have a domino effect on Miami-Dade’s economy.
The carrier employs about 9,000 at Miami International Airport and leases 38 gates at Miami International on a monthly basis.
"We are a company in crisis in an industry in crisis," said Martha Pantin, American Airlines’ spokeswoman in Miami. "That is why we asked our employees for a reduction of $1.8 billion. We have already identified $2 billion in recurring cost savings."
Nationwide, AMR is asking labor leaders and employees to trim $1.8 billion in salaries and benefits. Its management and support staff have already suffered a 22% reduction, company officials said.
"It hurts the Miami-Dade economy if its major carrier lays off a lot of people," Ms. Gittens said. "So far, American Airlines has not laid off a lot of people here. But this could change."