The Impact of Airline Bankruptcies on Airports (2009) / Chapter Skim
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3 THE IMPACT OF AIRLINE BANKRUPTCIES ON AIRPORTS By Jocelyn K Waite Waite & Associates, Reno, Nevada I
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4 and bankruptcy counsel. Rejection of collective bargaining agreements, while important to airlines in bankruptcy,3 is also beyond the scope of this report.
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5 addition, airports face new federal security requirements.12 To the extent that new security requirements have prevented nonticketed people from reaching concessionaires situated beyond security checkpoints, those requirements have also led to a reduction in nonaeronautical revenue at some airports.13 Some airports are more vulnerable than others. A representative of Moody's Investors Service testified to the House Aviation Subcommittee that airline bankruptcies were expected to affect "those airports with less profitable routes, a high reliance on airline-derived revenues, a service area that is below the median in terms of generating demand for air travel, belowaverage liquidity levels, and limited ability to cut airport operating costs and/or scale back capital programs."14 Other factors include: whether the airport's market has a high percentage of origin and destination traffic; whether the Chapter 11 airline operates a significant hub at the airport;15 the level of airline competition in the market; 16 the type of rate setting agreement; and the presence of majority-in-interest provisions.17 Airports may rely on a range of bonds to help finance airport operations, including general obligation (GO)
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6 PFCs can be used on a "pay-as-you go" basis to fund small projects, as a means to fund bonds that pay for large projects,29 and to repay tax-exempt bonds issued to finance improvements.30 The purpose for PFC revenues can be changed. For example, Lambert-St.
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7 have doomed special facility bonds as a viable financing mechanism,45 these bonds are not entirely dead.46 To the extent that such bonds are issued in the future, the issuer may retain a substantial economic interest to deter recharacterization of the leases.47 2. Precarious Airline Financial Condition There were difficulties in the airline industry even before the terrorist attacks on 9/11, including the recession that began earlier that year.48 That situation became worse in the wake of those attacks,49 as airlines suffered a massive decrease in traffic.50 A number of airline bankruptcies ensued, including those of United Air Lines, US Airways, and Hawaiian Airlines.51 The SARS outbreak and increasing fuel prices also hurt the airline industry.52 Other legacy carrier bankruptcies since deregulation include TWA (Chapter 7)
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8 3. Importance of Airlines to Airport Finances As noted above, airline-based revenues back, in whole or in part, several critical financing mechanisms for capital improvements.
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9 cies can increase airport expenses because of resultant bad debts.78 Finally, the link between airlines -- including their financial situation -- and airports' credit rating is clear. The mere presence of a dominant carrier can be detrimental.
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10 pay-as-you-go PFCs and 57 percent from bonds.95 Although historically MAC financed capital construction at MSP through general obligation revenue bonds, since 1998 it has relied on GARBs (except for refinancing the original bonds)
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11 tracts: Eight of the airport respondents had had carriers defaulting on or rejecting leases or contracts. Four of these respondents had been able to work out subleasing arrangements with the bankrupt airlines or to reclaim facilities, and therefore were able to reallocate facilities to some degree to other carriers.
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