Allegheny County Airport Authority Confident of Maintaining HubStatus

Airport Authority Confident of Maintaining Hub Status 
Director says airline's options are limited 

Pittsburgh Business Times
December 8, 2003 
 
Dec. 8 — Allegheny County Airport Authority executive director Kent George 
this week downplayed speculation that US Airways might consider shifting 
Pittsburgh flights and jobs to its Charlotte hub, if negotiations regarding the 
airline's hub here reach an impasse.  
        Mr. George, responding to a recent report in the Business Times that 
officials in North Carolina plan to aggressively pursue those jobs and flights 
if US Airways leaves, said he is confident that the airline is "not going to 
walk out of here on Jan. 4" -- the deadline US Airways has set for reaching 
new, less expensive lease agreements at Pittsburgh International Airport.
        He declined to say whether anything, specifically from the authority's 
talks with the airline, had generated such optimism.
        However, he pointed to several industry dynamics, including Southwest 
Airlines' recent entry into US Airways' territory in Philadelphia, US Airways' 
continuing struggle with industry-high per seat mile costs and the difficulty 
and expense of shifting operations to another hub, that could handcuff the 
airline and make Pittsburgh a more desirable hub to hold onto.
        "The chances of US Airways leaving Pittsburgh at this time are very, 
very slim," Mr. George said. "We don't believe US Airways has a lot of options 
to go to another location."
        US Airways spokesman David Castelveter declined to respond to Mr. 
George's assessment of the likelihood of a US Airways departure from 
Pittsburgh. However, he said the airline still maintains that if it cannot 
lower its costs at Pittsburgh International, it will pull out its local hub.
        "We can't continue to operate in Pittsburgh under the current cost 
structure," Mr. Castelveter said. "Losing money is not acceptable, and for us 
to preserve Pittsburgh as a hub, we must significantly reduce our costs at that 
airport."
        In March, US Airways rejected its leases at Pittsburgh International as 
part of its successful Chapter 11 bankruptcy restructuring. The airline, which 
accounts for more than 80 percent of Pittsburgh International's traffic and the 
bulk of its debt obligation, wants to see the Airport Authority slash the 
airport's more than $670 million in outstanding debt by $500 million.
        US Airways, the nation's seventh-largest airline, has threatened to 
reduce or eliminate its hub here, as well as move its Pittsburgh-based regional 
airline, MidAtlantic Airways, depending on the outcome of the talks.
        Pennsylvania Gov. Ed Rendell and local government officials have 
offered a $264 million incentive and improvements package and the Airport 
Authority is working on an arrangement to reduce the airport's debt by $25 
million a year, for five years.
        Since its initial lease rejection, US Airways has agreed to maintain 
its current number of flights in Pittsburgh until Labor Day 2004, in order to 
give negotiators some breathing room to work out a new lease agreement.
        However, in October, the airline asked the Airport Authority, which 
runs Pittsburgh International, to allow it to operate under its current lease 
terms for another year. In exchange, US Airways pledged to keep its hub and 
essentially the same number of jobs here for the length of that term.
        The Airport Authority denied the request, which means US Airways would 
have to pay a 20 percent premium on top of its regular lease and landing fees 
if it chooses to operate here after Jan. 4, but has not yet reached a new lease 
agreement. The premium -- which is assessed on all airlines operating at 
Pittsburgh International that are not covered by its residual operating 
agreement -- would cost US Airways millions of additional dollars.
        US Airways' current lease, which will be null on Jan. 5, was signed in 
1988 and had been set to run through 2018.
        Michael Boyd, an Evergreen, Colo.-based aviation industry analyst and 
president of The Boyd Group Inc., said the back-and-forth between US Airways 
and the Airport Authority is to be expected under such delicate negotiations, 
even if both sides essentially want to reach an agreement that would solidify 
the airline's Pittsburgh presence.
        "Negotiations, by nature, are adversarial," Mr. Boyd said. "I don't 
think what Kent (said) was posturing. What he said was accurate from his point 
of view.
        "US Airways isn't going to walk out tomorrow. They don't have a lot of 
alternative options, but that doesn't change the fact that they could walk out. 
It's an economic equation."
        He said the airline could still look to cities such as Indianapolis; 
St. Louis; Columbus, Ohio; or Kansas City to replace the Midwest connection 
that Pittsburgh now provides. However, he said it would be difficult to uproot 
its local operations.
        "There are some potentials there (for relocation)," Mr. Boyd said. "But 
clearly, there's a lot less brain damage staying in Pittsburgh than going 
somewhere else."
 
 
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