"Indianapolis Airport retools formula that governs what BAA is paid"

Saturday, March 20, 2004

Airport retools formula that governs what BAA is paid
By Chris O'Malley
The Indianapolis (IN) Star


The firm managing Indianapolis International Airport has a stronger
financial incentive to please passengers, everything from attracting
more flights to speedier parking shuttle rides to the terminal.

The Indianapolis Airport Authority board on Friday approved a new annual
compensation formula for BAA that adds performance targets to a report
card that graded more on financial achievements.

The new formula stems from a decline in passenger traffic and higher
expenses that have effectively cut BAA's compensation in half since the
2001 terror attacks.

BAA's compensation fell to $1 million in 2002 from $2.4 million in 2000.
It earned $1.46 million last year.

"We were going to go into the tank after Sept. 11 unless we did
something," said Catherine Scionti, BAA Indianapolis president.

Since being hired in 1995 as the first firm to manage nearly all the
operations of a major U.S. airport, Britain's BAA has been rewarded on
the basis of how well it reduces costs airlines incur through airport
rents and charges.

That net airline cost per enplaned passenger is compared with a baseline
cost written into the contract.

BAA lowered airline costs by measures such as adding more food and
retail concessions -- boosting nonairline revenue.

But as fewer passengers have used the airport since Sept. 11, 2001, such
revenues have dropped. Meanwhile, expenses for such things as security
have risen.

After Sept. 11, "the new operating environment at the airport made it
difficult to administer the original airport management contract and
calculate management fees on the formula in the contract," said airport
board president Lacy Johnson.

The new contract caps BAA's annual compensation at $1.85 million in
2004, plus inflation adjustments. BAA's contract with the airport runs
through 2008.

Broadly, performance is graded in five categories: financial, safety and
security, customer service, operations and maintenance and capital
improvements.

For example, BAA would be graded on whether a construction project is
completed on time and under budget. Even how fast emergency units
respond to a fire alarm is weighed in the complex new performance
matrix.


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