"Frontier skeptical of DIA gate plan"

Friday, August 1, 2003

Frontier skeptical of DIA gate plan
Airline fears high interest rates on bonds to fund Concourse A expansion
By David Kesmodel
The Denver (CO) Rocky Mountain News


DIA might not be able to float bonds to finance most of a $300 million
expansion and - even if it does - the transaction likely would be extremely
costly for carriers, Frontier Airlines told the U.S. government.

Denver officials are reviewing the 16-gate Concourse A expansion, which
largely would benefit Frontier. Former Denver International Airport Manager
Bruce Baumgartner announced the deal July 16 - two days before he was ousted
by new Mayor John Hickenlooper.

The bonds, "if issuable at all," would "likely carry very high interest
rates given the revenue flow uncertainty at DIA," Frontier said.

The bonds would be repaid with higher user fees that would be passed along
to Denver-based Frontier and other airlines, Frontier said. Such operating
costs generally wind up being absorbed by consumers.

Frontier's statement, dated Monday, came as part of a response to a request
by the Federal Aviation Administration for public comment on the impact of
airline bankruptcies on hub airports and bond markets.

United, DIA's dominant carrier, is in Chapter 11 protection. Frontier, DIA's
No. 2 airline, says it needs more gates to accommodate its growth and claims
United is wasting gate space Frontier could use.

The FAA, under a congressional mandate, is studying what actions it might
take, if any, to reduce financial disruptions from airline bankruptcies. An
FAA spokesman did not return a call Thursday.

In a statement, DIA's co-aviation manager, Vicki Braunagel, said: "It is
true that the uncertainty of United's bankruptcy filing has resulted in
higher premiums for (municipal bond) insurance. Therefore, we are trying to
minimize the issuance of new debt until the airline industry's economic
condition improves."

DIA spokesman Steve Snyder said officials continue to study whether the
expansion would be prudent. DIA has not said when the two-year project might
start.

United might exit bankruptcy as soon as this fall, which would boost DIA's
odds of doing a bond deal. The airport was able to sell $287 million in
bonds in April. The bulk was used to refinance part of its $4 billion in
debt.

DIA probably could attract bond investors to go ahead with the Concourse A
expansion, but "the question is, at what cost?" said Kurt Forsgren, a
director at bond-rating firm Standard & Poor's. That's because "what United
plans to do in Denver at this time is uncertain," he said.

Frontier told the FAA it would ultimately support the expansion. However,
prior to starting it, Frontier favors alternatives "that would maximize
(DIA's) existing real estate."

United is renegotiating its lease at DIA, creating uncertainty about gate
space. The Chicago-based carrier says it is willing provide two of its eight
Concourse A gates to Frontier, but only temporarily.

Frontier leases 10 gates on Concourse A and is temporarily using four set up
for international carriers. It says it might start a secondary hub if it
can't soon get four or more gates of its own.

Baumgartner, an appointee of former Mayor Wellington Webb, announced the
Frontier expansion amid tension over United's protracted talks with Denver.
He did so without consulting Hickenlooper, who was days away from office.
That move killed Baumgartner's chances of keeping his job, the Rocky
Mountain News reported last week.

Ten of the 16 planned new gates would be earmarked for Frontier. The other
six would be for smaller, regional jets and could be occupied by Frontier or
other tenants.

At the time the project was announced, DIA officials did not say a bond deal
would be necessary. Baumgartner later said bonds would be needed and that
DIA had only enough money to get the project started. DIA said it could use
$65 million in existing funds previously earmarked for a proposed United
regional-jet gate upgrade.

Plans up in the air

Because of uncertainty surrounding United Airlines' finances, DIA is
reviewing:

   • A $300 million expansion plan

   • Ten new gates for Frontier

   • Six new gates for regional jet operators, possibly including Frontier

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