"Bond rating fears may limit DIA expansion"

Monday, August 4, 2003

Bond rating fears may limit DIA expansion
Analysts say airport risks credit downgrade if it upgrades for two airlines
By David Kesmodel
The Denver (CO) Rocky Mountain News


Denver International Airport can't afford to finance large facility
expansions for both of its major carriers without risking a downgrade to its
bond rating, financial advisers and major bondholders have told Denver
officials. 

That leaves Denver in a quandary: expand for United or expand for Frontier.
It will lay out that dilemma to United today when the two sides resume
negotiations on bankrupt United's lease. 

Denver officials will propose that United give up at least some of its
existing eight gates on Concourse A to Frontier if it is to have DIA upgrade
United's regional-jet facility on Concourse B at a cost of about $50
million, according to a Denver source familiar with the talks. One
alternative could be that United and Frontier split the use of some A gates,
the source said. 

Officials want Chicago-based United, DIA's dominant carrier, to accept one
of a range of solutions that allow DIA to accommodate United but also keep
Frontier from expanding at another airport. Denver-based Frontier, DIA's No.
2 airline, has said it might start a secondary hub if the airport cannot
soon meet its demand for four or more new gates. 

Last week, according to the Denver source, financial advisers and major
bondholders for DIA told officials that DIA would likely have its bond
rating downgraded if it upgraded United's commuter facility and also floated
bonds to cover most of a $300 million, 16-gate expansion on Concourse A that
largely benefits Frontier. 

Risking a credit downgrade "is not something we're willing to do," the
source said. 

The lease deal that Denver will propose to United will include about $100
million in benefits to the carrier, including the regional-jet gate upgrade,
about $15 million to rebuild and consolidate United's ticket counters and
about $10 million for drainage repairs on United's maintenance hangar, the
source said. 

More important to United and Frontier, however, are the hundreds of millions
of dollars in future annual revenue that is at stake depending on how gates
are allocated. The more gates an airline has, the more jets it can park and
the more passengers it can serve. 

United has more than 40 gates on Concourse B and eight on Concourse A.
Frontier has 10 on Concourse A and is temporarily using another four on A. 

In talks with United today, "what we want to do is present a range of
possible solutions and figure out which parts of those possible solutions
make business sense for them and us," the Denver source said. 

The talks will come roughly two weeks after former Denver Mayor Wellington
Webb ripped apart a letter from United that threatened Denver with legal
action if it failed to complete the regional-jet upgrade and cut certain
fees. United says Denver is obligated under its current lease to take these
steps, and it gave Denver 30 days to take action. 

Webb said Denver should not take any action until United affirms its lease.
Over objections by DIA and Frontier, United won bankruptcy-court approval
last month to extend its lease talks with all airports to as late as Dec.
15. 

Denver officials declined to discuss details of the talks with United on
Sunday. 

"It is in the city's interest to have both United and Frontier succeed,"
said Lindy Eichenbaum Lent, a spokeswoman for Mayor John Hickenlooper. "We
hope to find an arrangement that allows for that." 

DIA spokesman Dan Melfi confirmed that United executives and Denver
officials would meet today but declined to comment on any aspect of the
lease talks. 

The airport has about $4 billion in debt and a solid A credit rating. 

United spokesman Stephan Roth had no comment. 

Solutions to Frontier's need for more gates on Concourse A also could
include moving other carriers, such as Continental and Alaska, to Concourse
C.


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