"Indiana airport stands to lose big if ATA departs"

Sunday, October 31, 2004

Airport stands to lose big if ATA departs
By Urvaksh Karkaria
The Fort Wayne (IN) Journal Gazette


With ATA Airlines having crash-landed into bankruptcy court last week, the 
future of the airline’s Fort Wayne-to-Chicago air service isn’t the only 
thing up in the air.

The Fort Wayne-Allen County Airport Authority lured the low-fare carrier with a 
$2.5 million incentive package, which included $1.5 million in cash.

Although about $1 million of those incentives were in assets that are owned by 
the airport authority, at least a part of the $1.5 million might not be 
recovered if the airline pulls its Fort Wayne service.

ATA, the only low-fare airline at Fort Wayne International Airport, began 
operating four daily round-trip flights between the Summit City and Chicago 
Midway in June.

On Tuesday, ATA filed for Chapter 11 bankruptcy, hobbled in part by soaring 
fuel costs and an industry fare war.

ATA said it would jettison airport slots and other assets to AirTran Airways 
for $87.6million. AirTran Holdings Inc., based in Orlando, Fla., will assume 
ATA’s flight operations, gate leases and routes at Chicago Midway Airport and 
arrival and departure slots at New York’s LaGuardia Airport and Ronald Reagan 
Washington National Airport.

The deal, subject to approval by the bankruptcy court and other entities, is 
expected to take effect early next year, ATA officials said last week.

Although ATA said it plans to honor tickets and maintain its full flight 
schedule, questions about the future of its Fort Wayne service remain 
unanswered.

Calls to ATA and AirTran last week were not returned.

The service between Fort Wayne and Chicago is operated by Chicago Express, an 
ATA-owned regional carrier.

Under the terms of the proposed deal, AirTran has the right to enter into a 
code sharing agreement with Chicago Express, but AirTran is not buying Chicago 
Express, said Michael Boyd, president of The Boyd Group, an aviation consulting 
firm in Evergreen, Colo.

Chicago Express could become a feeder airline for AirTran, carrying passengers 
from smaller cities such as Fort Wayne to Chicago, Boyd said.

If AirTran reaches an agreement with Chicago Express as part of the deal, the 
Fort Wayne service could continue, although under a different name, said Larry 
Thompson, vice president of air service development with the Greater Fort Wayne 
Chamber of Commerce.

But if Chicago Express is not able to do the deal, Thompson said AirTran might 
discontinue the service because the airline typically flies between major 
cities and not between regional and major airports.

“I would not be surprised (if) Chicago Express is saying to AirTran, ‘Hey 
we’d be glad to provide that service for you between 13 cities and Midway, 
… and let’s talk price,’ ” Thompson said. But “I don’t think 
it’s gotten that far at this point.”

Stephen Hoedt, airline analyst at National City Private Client Group in 
Cleveland, is pessimistic about the long-term future of ATA’s Fort Wayne 
service.

AirTran typically flies jets that carry 110 to 130 passengers, and Chicago 
Express operates flights on turboprops with roughly 30 passengers, Hoedt said.

“The likelihood that AirTran is going to assume and operate the Chicago 
Express routes in the future is not (high),” he said.

But the analyst does offer up a scenario where ATA’s Fort Wayne service might 
continue – albeit to a different destination.

As ATA reorganizes around its Indianapolis hub, the airline might redeploy 
Chicago Express aircraft from Chicago Midway to Indianapolis, Hoedt said.

So instead of flying to Chicago, the Fort Wayne ATA service might fly to 
Indianapolis.

Local airport officials have their fingers crossed that ATA’s Fort Wayne 
service, which they negotiated for more than a year to win, will continue.

But if not, they hope to reclaim some of the incentives they offered.

As part of its contract with the airport authority, ATA must repay some of the 
$1.5 million in cash incentives it received if it halts local service before 
June 2005, said Rick McElroy, the airport’s director of administration and 
finance.

For instance, if ATA pulled out of Fort Wayne in December – six months after 
its arrival – it must repay half of the $1.5 million, he said.

Requiring ATA to repay half the $1.5 million in cash incentives if it pulls out 
in six months is a fair deal, Boyd said.

“It shows the airport did a really good job in putting a solid agreement 
together with the airline,” he said. “There are performance guarantees. If 
you pull out, you give us our money back.”

Whenever an airport authority can negotiate such reimbursement obligations it 
is good, said Mark Moore, chairman of the Indiana Transportation Finance 
Authority.

“They are difficult to negotiate,” he said. “There are always a lot more 
airports that want air service than airlines can serve.”

But whether the local airport authority will ever recover any money from the 
bankrupt airline is a different question.

The airport authority is considered an unsecured creditor and those creditors 
are typically the last to get paid in a bankruptcy.

“It would be up to the court on what we would be able to collect,” McElroy 
said, declining to speculate on the odds that the airport would be able to 
collect any of the money it might be owed.

As an unsecured creditor the airport authority might be able to recoup only a 
portion of what ATA might owe it, Hoedt said.

“I do not believe they would get back the full amount,” he said.

And if that happened, Fort Wayne would not be the first airport to be stiffed.

In May 2003 state and local authorities who granted economic incentives to lure 
United Airlines to develop a maintenance center at Indianapolis International 
Airport filed claims for at least $100 million after the airline shut the 
operation, said Moore, with the Indiana Transportation Finance Authority.

The claims are related to United’s failure to invest $800 million at the 
center and to employ at least 6,300 workers there by 2004. Those claims are 
still pending, Moore said.

Despite the potential risks, airport officials said offering the incentives was 
critical in bringing the airline to Fort Wayne.

“It’s becoming more common now in competing for service at airports to 
provide some type of incentive to attract new service,” McElroy said. “We 
protected the (airport authority) by making part of the package asset-related, 
so that if the worst did happen the airport would still retain ownership of the 
assets.”

About $1 million in incentives provided to ATA were in the form of assets, such 
as baggage carts, a belt bag and a jetway through which passengers enter and 
exit aircraft, which can be used by other airlines even if ATA pulls out.

And few argue that ATA’s arrival in Fort Wayne was anything but positive to 
passengers and the airport authority.

Although airfare data will not be available from the federal government until 
early next year, the entry of a low- cost airline into a market such as Fort 
Wayne typically reduces the average fare by about 15 percent, Thompson said.

McElroy offers an example of the ATA effect on local air fares.

The executive paid more than $400 for a round-trip United Airlines flight from 
Fort Wayne to Los Angeles in the spring of 2003. That same trip on ATA this 
June cost him $286, McElroy said.

Competitive pricing also helped boost passenger volume at the Fort Wayne 
airport by nearly 14 percent in September compared with the same period last 
year, Thompson said.

Nearly 25,750 passengers boarded flights at the local airport in September 
2003, Thompson said. This September – three months after ATA’s arrival – 
that number jumped to 29,335.

The increase in passenger traffic that ATA helped trigger has generated 
revenues not just for the airlines serving the market, but for the airport 
authority, too.

Consider this: Parking revenues for the airport authority were up 27 percent to 
about $169,600 for August compared with the same period last year.

Its revenues from restaurant sales were up 28 percent for August to $8,000.

More people, Thompson said, are parking at the airport, renting vehicles there 
and eating at its restaurant – all of which adds to the airport authority’s 
coffers.


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