Airport Tied Into Short Lease With American Until Expansion Is Completed
Written by Charlotte Libov on November 2, 2006
By Charlotte Libov
Although American Airlines is expected to provide 70% of Miami International Airport’s traffic by 2025, it has only a 30-day lease, a fact aviation officials probably cannot change until the airport’s $6.2 billion renovation is finished, an aviation official said.
The county commission’s Regional Transportation Committee last week worried over the short-range lease the airport’s biggest client holds, especially since American, while supportive of a renovation plan that just ballooned by another $1 billion, has not committed to it.
The short leash on airport leasing dates to the late 1970s, said Miguel Southwell, Miami-Dade Aviation’s assistant director of business development, when Congress deregulated airlines, leading to bankruptcies of such giants as Pan Am, which hammered Miami. As a result, Miami International, along with airports around the US, went to short-term leases to avoid tying up gates during bankruptcy proceedings.
Since then, though, other airports have adopted a variety of leasing arrangements that Miami International has been looking at as well.
The most attractive, Mr. Southwell said, is a preferential system, in which an airline can pay in advance to have first use of a gate. But if the airline doesn’t exercise that option, the gate could be made available to other airlines.
Such a system would involve a longer-term lease, perhaps five years, Mr. Southwell said. But, he said, consideration of longer leases would be unlikely until the airport’s renovation is complete.
"It doesn’t make sense to be moving people around when you may not need to during the next construction period," he said in an interview.
Airport officials have said the main problem with the renovation is the escalating cost at the North Terminal. The terminal, due to be finished in 2010, is now estimated to cost $2.66 billion, up from the last estimate of $1.94 billion, the Regional Transportation Committee was told last week.
At that meeting, Aviation Director José Abreu said that, despite his plans to downscale the North Terminal’s renovation, the cost has now ballooned, even though he plans to eliminate an atrium, staircases and other architectural features.
The main culprits, he said, are escalating costs for materials and labor at the North Terminal, to be used by American Airlines and its alliance partners.
Work is nearing completion on the new 1.2 million-square-foot South Terminal, which is expected to open in March. But it is North Terminal that has proved the most costly and often-delayed.
Commissioners at the meeting said the rising costs might make the airport less competitive. The costs are passed on to the airport’s airline tenants, who fund them through a fee on passengers. Miami’s passenger fees are already far above those at neighboring Fort Lauderdale/Hollywood Airport, and rising construction costs simply send projected fees higher.
Under Mr. Abreu’s latest proposal, the airport’s cost per passenger, currently about $18, is estimated to rise to about $35. When costs are too high, airlines may shift flights to lower-cost airports to remain competitive.
Commissioners were also concerned about American Airlines’ short lease.
"This is a huge investment but right now you’re still on a 30-day lease," Commissioner Katy Sorenson said to Robert Weiss, an attorney representing American Airlines.
"We are generally supportive. We need the facilities, but we have to run the numbers up the flagpole," Mr. Weiss answered.
Commissioners also said the rapidly increasing renovation costs may hamper the county’s ability to borrow. At the meeting, commissioners expressed concern that these could lead agencies to lower their ratings of bonds used to fund the capital improvement program.
"How high is too high? This is not an easy question to answer. We have to go to the bonding rating agencies. The cost is already too high," Mr. Abreu said, noting that the renovation is incomplete. "We are caught between a rock and a hard place. We have invested millions and we don’t have anything to show for it."
Commissioners urged Mr. Abreu to continue studying plans with an eye to more cost-cutting. The full commission is expected to hear the latest proposal on renovations in December.
The committee also discussed Mr. Abreu’s proposal to temporarily close part of the North Terminal during renovations to speed the project by two years, in part by enabling work to be done in a fenced-off area so workers wouldn’t constantly need to go through security checkpoints.
"Have you cleared this with Homeland Security and the FAA?" Commissioner Sally Heyman asked. "I’ve lived to see the best of intentions sometimes not work out."