"Pittsburgh socks US Airways with increase in airport rent"

Saturday, June 21, 2003

Agency socks US Airways with increase in airport rent
By Jeffrey Cohan
The Pittsburgh (PA) Post-Gazette


The Allegheny County Airport Authority yesterday increased the rent charged
to US Airways, at a time when the airline is threatening to eliminate its
Pittsburgh hub because of high costs.

Authority and county officials defended the increase as necessary for
balancing the budget at Pittsburgh International Airport, which is suffering
from a decline in passenger traffic.

"The fees are automatic. Either you raise them or you go in the hole,"
county Chief Executive Jim Roddey said yesterday.

The rent increase -- which takes effect July 1 and affects all airlines at
the airport -- will cause the cost per passenger at Pittsburgh International
to rise from $7.59 to $9.07.

That's moving in the wrong direction in the view of US Airways, which is
demanding dramatic reductions in per-passenger costs at Pittsburgh. At its
hub in Charlotte, N.C., the airline pays $1.30 per passenger.

US Airways spokesman David Castelveter refused to comment yesterday on the
airport authority's move.

Authority Executive Director Kent George said representatives of US Airways
and the other main tenants have accepted the rent increases as a necessary
move.

The authority based its 2003 budget on a forecast of 9 million passengers.
After a dismal first half of the year, authority officials have lowered the
forecast to 7.75 million.

As a result of the dropoff in traffic, a $2.1 million hole opened in the
authority's $138 million budget over the first five months of this year. And
the hole would have only grown deeper if the authority board hadn't taken
action yesterday, members emphasized.

"It's pretty simple math," board Chairman Glenn Mahone said. "There is
nothing we can do about it."

The authority coupled the rent increases with cost-cutting moves, slashing
$2.7 million from the budget. Twenty-five union employees have been laid
off. Resignations, retirements and a hiring freeze have eliminated another
17 people from the payroll. And the airport is closing its E concourse to
save money.

Increases in the rent charged to airlines will add $2 million to the
authority's coffers, balancing the budget.

Rental income from airlines will increase from the $68.3 million figure in
the authority's original budget to $70.3 million in the revised version, or
2.9 percent. 

US Airways, as the principal tenant, will pay more than $60 million of the
$70.3 million.

But computed on a per-passenger basis, the rent is going up 19.5 percent. 

That's because the $70.3 million will be spread among 7.75 million
passengers, not the 9 million originally expected.

Roddey said yesterday's move will not complicate negotiations with US
Airways, which wants a less-expensive lease at Pittsburgh International.

US Airways could reduce its per-passenger costs by adding flights at
Pittsburgh International, Roddey added.

"They are in indirect control of that number," he said. "If they weren't
cutting their flights back, the fees would not be that high."

Realistically, the per-passenger charge will never drop to Charlotte's
level, mainly because of bonds that require $62 million a year in debt
service at Pittsburgh International.

But Roddey believes the airport can find a way to reduce the per-passenger
figure to less than $5, hoping that will be low enough to appease US
Airways.

As recently as August 2001, airlines paid $5.36 per passenger at Pittsburgh
International.

In addition to a lower-cost lease, US Airways wants public funding for a
variety of expensive improvements to the airport.

Gov. Ed Rendell has offered US Airways a $263.9 million package of
cost-saving concessions and airport improvements to keep its hub in
Pittsburgh and at least maintain its current level of operations in
Philadelphia.


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