"Detroit questions more airport expansion"

Tuesday, September 25, 2001

Wayne County questions more airport expansion
Northwest backs building despite drop in passengers
By Paul Egan
The Detroit (MI) News

 
   ROMULUS -- Fallout from the Sept. 11 terrorist hijackings has Wayne
County rethinking the next phase of its expansion plans for Detroit
Metropolitan Airport, and whether to borrow up to $900 million more for
new projects. 

   For Wayne County Executive Edward H. McNamara, the suicide crashes
that killed more than 6,000 people in New York City and Washington,
D.C., transformed the airport from bustling to borderline, from a
reliable supplier of jobs and lucrative contracts to a heavily mortgaged
facility with an uncertain outlook. 

   County officials don't yet know how much money the airport has lost
because of the drop in air travel. But they do know that fewer
passengers will mean less revenue from airline and passenger fees and
concessions, such as parking, shops and restaurants. Those are the
county's main sources for repaying construction bonds. 

   As construction of a $1.2-billion Midfield Terminal nears completion
and airport managers contemplate county layoffs, the Wayne County
commission will hold a special meeting Wednesday to assess the new
financial realities. Among the decisions: whether to approve selling
bonds for additional capital improvements such as planned expansion of
the new Midfield terminal and refurbishing of the existing ones. 

   The improvements, estimated to cost $800 million, were expected to
start next year and continue in phases until 2006. 

   But the unexpected attacks shook the confidence of the flying public,
prompted time-consuming new security measures and cut commercial
passenger traffic an estimated 20 percent to 50 percent. It has also
caused some county elected officials to question whether now is a
prudent time to expand. 

   Commissioner John Sullivan noted that the refurbished terminals are
intended to serve some of the airport's smaller airlines, but "right now
it's questionable whether those smaller airlines are still going to be
viable in a few months." 

   Thomas Naughton, the county's chief financial officer, said the
financial impact of reduced airport passengers is still being assessed.
But the county will likely defer some of the planned capital projects
and reduce the amount it needs to borrow, he said. 
   
Declines evident 

   In 1998, when Wayne County issued $1 billion in bonds to help build
the mile-long Midfield Terminal, it estimated the number of passengers
would increase an average of 4.1 percent a year, from 15.3 million in
1997 to 21.9 million in 2006. The decline this year is still unknown,
but the number of passengers was down 3 percent for the first six months
of 2001, even before the attacks. 

   Even with decreased passenger numbers, the county will benefit from
recent federal approval of a 50-percent increase in the facility charge
added to each passenger's ticket, from $3 to $4.50. 

   The outlook for concession fees, which by 2006 were expected to hit
$115 million and roughly equal airline and passenger fees, is more
gloomy. 

   The county is grappling with a new Federal Aviation Administration
requirement that only ticketed passengers can reach the gate areas,
where many of the Midfield Terminal shops will be located. Without
design changes, that means the shops will be cut off from the "greeters
and meeters" from which they hope to get much of their revenue. Last
week, a collection of 14 restaurants slated for the new terminal
withdrew, apparently over economic concerns. 
   
Airport not alone 

   Metro Airport is not alone in its woes. 

   "Almost every single airport we have talked to is re-evaluating their
capital improvement program and their future debt issues," said Adam
Whiteman, a senior vice-president and airport analyst with Moody's
Investors Service in New York. "It's a very different world." 

   What's unknown is how long the drop in air travel will last. Moody's
analysts believe the shocks will likely be felt into 2002 because the
terrorist attacks will be followed by U.S. military action that also
will curtail travel. Even with a promised $15-billion federal bailout to
the airlines, "we have a negative outlook on the industry," Whiteman
said. 

   Since the attacks, several airports have delayed plans to issue bonds
to finance capital improvements, Whiteman said. Moodys has downgraded
its ratings for airport bonds issued earlier by the Massachusetts Port
Authority and the Metropolitan Washington Airports Authority. "I
anticipate we will see other actions as the week progresses," he said. 
   
Consider duration 

   Still, many believe the adverse effects of the attacks will be
short-lived. 

   Northwest Airlines, the airport's major carrier, wants to go ahead
with the next phase of expansion, which includes spending $175 million
to add 24 gates to the 97-gate Midfield Terminal and $428 million to
redevelop the existing Smith and Davey terminals. 

   Although the airline has cut 20 percent of its flights and nearly
10,000 employees, "the additional gates and the renovation of the old
terminal is proceeding," spokeswoman Mary Beth Schubert said. "We are
waiting for county commission approval." 

   The Midfield Terminal is expected to open on Jan. 20. The additional
gates for the terminal would be completed sometime in 2003. 

   David Littmann, chief economist with Comerica Bank in Detroit, said
the bond markets take the long-term view and the recent setbacks in the
airline industry are temporary. There's no reason for the county to
shelve its expansion plans, he said. 

   Littmann did think the business climate in the wake of the attacks
could accelerate expected mergers and acquisitions in the airline
industry. 

   Wayne Doran, chairman of the Detroit Metropolitan Airport Advisory
Committee, said he believes confidence will be fully restored by the
time the airport's planned capital projects are built. 

   Until then, "we shouldn't be intimidated," said Doran, who heads a
group of business and community leaders who advise the airport. "I hate
fear and intimidation."

Attached Photo/Graphic:

A lone visitor scans flights listed at Metro Airport. A decline in
passengers, and revenue, since Sept. 11 has county officials rethinking
expansion plans.

Detroit Metro Terminals

detroit_visitor.jpg

detroit_terminals.gif