"Opinion: Storm clouds over DIA"

Saturday, November 2, 2002

Opinion: Storm clouds over DIA
Despite recent turbulence, Denver's airport on course for clear skies
ahead
By Joe Mysak
Bloomberg News


If Denver International Airport were a stock, the bears would be talking
about this being the time to short it. 

It's easy to see why. Airports aren't doing as much business these days.
Air travel is down in the wake of the Sept. 11 terrorist attacks. It
dropped 22 percent nationwide from September to the end of last year.
Through the first six months of this year, air travel was still down by
more than 11 percent. 

The decline raises questions about the future of the airline industry in
general and the airlines' current "hub and spoke" system, which provides
service to dozens of cities from a few large airports. 

Denver is United Airlines' second-largest hub. Chicago is No. 1. United,
with its commuter affiliates, accounted for 62.5 percent of all
passengers put on planes at Denver during the first six months of this
year, and 69 percent of the airport's operating revenue. In August,
United said it was considering filing for Chapter 11 bankruptcy
protection this fall. 

"As United goes, so goes that airport," said Robert MacIntosh, chief
economist at Eaton, Vance & Co. in Boston, in an interview. MacIntosh
manages more than $1 billion in municipal bonds for Eaton, Vance. 

That's why if Denver International Airport were a stock, the bears would
be talking about shorting it along about now. 

The airport sold $203 million in revenue bonds last month to refinance
some outstanding debt and save money. The offering documents for the
bonds present the case for the bears. All the bad news is disclosed. 

And it is discounted, to judge from the airport's plans. One day the
stock market will go up, companies will hire and business travel will
revive. Cheerier times are ahead. 

The airport is working on a sixth runway, scheduled to be finished in
the fall of 2003. It's planning to expand one of its concourses to add
new gates by 2005. It's designing a 518-room, full-service, first-class
hotel, which it figures will be finished by late 2004. 

These are not the plans of the daunted or fainthearted. 

"We're undertaking these projects based on demand," said Steve Snyder,
an airport spokesman. "We've recovered better than a lot of airports
around the country." 

Nationally, the number of airline passengers was down by 11.4 percent
during the first six months of this year. At Denver, the number was down
by 8.9 percent. 

Snyder added, "Obviously, we're banking on the economy being a little
different" when the new projects are scheduled to be completed. 

New runways, new gates, new hotels don't come cheap. The runway is
expected to cost $169.3 million, almost three-quarters of which is paid
for by the Federal Aviation Administration. The concourse expansion is
put at almost $300 million, the hotel at $125 million. The airport will
pay for most of this with money borrowed in municipal bonds. 

It will find plenty of buyers for its bonds. It's easy to be bearish
about the Denver airport. It's also wrong, for all kinds of reasons. 

Denver International Airport handled 17.5 million passengers in 1997.
This number rose to 18.4 million in 1998, 19 million in 1999, 19.3
million in 2000. There are your reasons to believe in Denver's airport,
and its bonds, for that matter. 

If United Airlines files for bankruptcy, it will continue operating in
some fashion. If United goes away, some other airline will move into
Denver. In 2001, Denver was the nation's fifth-busiest airport and the
world's 10th busiest. The airport's bonds may be downgraded if United
goes bankrupt. The airport may be forced to pay more to borrow in the
future. If it does, those bonds will be buys.


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