"Port of Portland officials consider way to shift cost"

Thursday, February 13, 2003

Port officials consider way to shift cost
BY DYLAN RIVERA
The Oregonian


Portland International Airport could shift part of the risk of its new
nonstop flights to Germany from major airlines to motorists who park cars at
the airport.

The change, which the Port of Portland commission will consider this
morning, relates to a main airport incentive for Lufthansa German Airlines:
a waiver of landing fees and other charges for the first year of service
starting March 31 between Portland and Frankfurt, Germany.

Last fall, in luring the airline, the airport offered the waiver, valued at
$1.9 million, saying the airport's other airlines would cover the revenue
loss.

But after negotiating with other airlines, airport officials propose to use
an airport fund comprised mostly of parking revenue to cover the first-year
loss, asking the airlines to reimburse the fund over the ensuing two years.

If Lufthansa were to withdraw its Portland presence, the airlines would stop
reimbursing the fund, leaving the airport on the hook for any shortfall.

The airport could use money from parking and rental-car fees, among other
sources, to make up for the difference. Parking fees account for about 60
percent of that money pool.

Officials of the Port of Portland, the airport's owner and operator, defend
the airport's assumption of the risk as a modest investment for a new
service that they said could provide a big economic boost for Oregon.

"We felt strongly enough that we needed to be aggressive in recruiting a new
carrier that we were willing to take some risk to do that," said Steve
Schreiber, aviation director for PDX.

Schreiber does not foresee a need to raise airport parking fees to cover the
waived fees.

Yet, the possibility of losing an international carrier is well understood
at the Portland airport, which lost Delta Air Lines' nonstop service to Asia
in March 2001.

Acknowledging downside risk in air travel, Lufthansa last month lowered its
2003 profit estimates. It cited concerns about war with Iraq and continued
weak economic conditions. The airline also recently scaled back first-class
seating to and from some large East Coast airports.

"There is no way that 2003 will be better than 2002," Karl-Ludwig Kley,
Lufthansa's chief financial officer, told the Financial Times of London last
month.

Airport officials plan to do what they can to limit Lufthansa's risk and
help the airline succeed with its new service here. The staff-recommended
plan is likely to pass muster with the commission, which almost never votes
down staff proposals.

Airlines share responsibility -- to the tune of about $77.7 million this
fiscal year -- for the costs of operating and maintaining the airport
terminal.

When a new airline starts serving an airport, costs go up to serve the new
aircraft and additional passengers.

Airlines generally welcome new carriers, however, because they boost the
number of companies sharing the costs, said Jack Walsh, spokesman for
Seattle-based Alaska Air Group, whose Alaska Airlines and Horizon Air pay a
large share of the fees at PDX.

If a new airline were to pull out after a year of waived fees, the number of
airlines sharing the costs would revert back to the previous number, but the
costs from the initial year would remain, he said.

"In the meantime, the other airlines pick up additional cost," Walsh added.

Under the proposal to be reviewed this morning, the airport fund would be
reimbursed monthly without interest beginning in April 2004 -- the 13th
month after Lufthansa starts nonstop service.

The payments would continue through June 2006, as long as Lufthansa serves
Portland.

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