"Closing Love Field would cost millions"

Monday, May 15, 2006

Closing Love Field would cost millions
Southwest: American-pushed plan could be a 'taking' requiring condemnation
By Margaret Allen 
The Dallas (TX) Business Journal


Closing Dallas Love Field could cost Dallas taxpayers upward of $150
million. 

As officials ponder whether or how to repeal the federal Wright Amendment,
American Airlines Inc. has been calling in recent months to close city-owned
Love, despite decades of litigation resulting in courts confirming
Southwest's right to operate there. 

Closure, however, would appease financially struggling American, the city of
Fort Worth and others who don't want Love Field competing with scheduled,
commercial passenger service at Dallas/Fort Worth International Airport. 

Executives at Southwest Airlines Co. -- Love Field's biggest tenant and the
only commercial airline with buildings at the airport -- acknowledge giving
some thought to being paid adequately for the company's loss if Love were
closed and the airline moves elsewhere. 

"There's strong argument in real estate law that something like that is a
'taking' and would require condemnation," said Bob Montgomery, Southwest's
vice president for properties and facilities. "We're looking at everything,
but have not pursued it just because the closing of Love Field seems so
ludicrous." 

Southwest has spent $150 million to build facilities at Love Field over the
last 30 years, including the company's 950,000-square foot headquarters,
Montgomery said. 

But neither he nor Southwest spokesman Ed Stewart would estimate a buyout
figure. "It would be a big number," Stewart said. 

"Suffice it to say it would be more than the stock options of all American
Airline's executives combined," added Montgomery, referring to American's
recent stock-option payout to executives, the value of which has been
estimated at $70 million. 

Southwest began building at Love Field in 1975. Besides its corporate
headquarters, it has a 200,000-square-foot simulator building, 650,000
square feet of maintenance hangars, a 40,000-square-foot data center and
about 100,000 square feet of warehouse space there. 

In an arrangement typical of U.S. airport infrastructure improvements made
by private companies, the airport technically owns Southwest's buildings,
said Kenneth Gwyn, aviation director for the city of Dallas. The buildings,
also typical of airport contracts, are under lease to Southwest through
2046, Gwyn said. 

He was noncommittal, however, on the question of how much Southwest would be
compensated if Love were closed to commercial traffic. "I'm not sure how
that would work," he said. 

City attorney Bob Sims, who oversees aviation matters, didn't return calls
seeking comment. 

Noise issue 

In Southwest's view, any move by the city to close the airport would
probably be for "noise control" reasons, Montgomery said. 

Love's critics say lifting the Wright Amendment and opening the field to
long-haul traffic, which Southwest favors, would result in a flood of new
airline competition and subject surrounding neighborhoods to more jet noise.


At least two neighborhood groups have formed around the issue of additional
noise, particularly as it would impact schools near Love Field. 

In the event of a noise closure, Montgomery said, the city would be bound by
a December 1986 "noise buyout" agreement. 

Under that deal, he said, Southwest agreed to the considerable expense of
accelerating its use of what's called "Stage III hush kit" technology to
quiet its fleet of Boeing 737 aircraft, thereby reducing noise at the
airport. 

In exchange, the city said it would never impose any other mandatory noise
restrictions, Montgomery said. And if it did, he added, the city would buy
out Southwest's improvements at the airport at current market value. 

"If the city chooses to close Love Field," Montgomery said, "I would argue
that the terms of this contract kick in. ...They would have to buy out our
infrastructure at market value" -- which would be more than $150 million. 

The issue isn't so clear when it comes to terminal leases for the gates,
Montgomery said, if the city closes Love Field or just decides to restrict
the number of gates, which has also been discussed. 

Southwest leases 21 of 32 gates at Love Field, but currently operates from
only 14. It pays the airport about $2.24 million a year in rent, Gwyn said. 

"If the city wanted to restrict the number of gates for political reasons,
there would be negotiation and I don't know how it would turn out,"
Montgomery said. "That's not covered in the contract. That's new territory.
There aren't any rules." 

It's his opinion the city couldn't unilaterally renege on its terminal
leasing contract. If the city did default on the agreement, he said, there
are cures in a default section of the contract, including demanding
performance or payment for loss of revenue damages. 

Continental Airlines Inc., which has just two gates at Love Field, doesn't
see things the same way, according to Sarah Anthony, a spokeswoman. 

Continental, through its subsidiary ExpressJet Airlines Inc., has the gates
leased through 2008, with ExJet having the option to extend that through
2021. ExJet pays about $196,000 a year in rent. 

All improvements to make the gates operable, Anthony said, are made at
ExJet's sole cost without reimbursement from the city. 

"I think the only circumstance in which the city would owe any money to
ExJet would be if ExJet had paid its rent on the first of the month for that
month and the city closed the airport/terminal during that month," Anthony
said in an e-mail. "Although not addressed in the lease, we expect they
could recover a pro-rata share of that month's rent." 

While American is one of those strongly pushing to close Love Field, the
Fort Worth-based carrier would expect compensation for being forced out of
Love, according to Tim Wagner, a spokesman for the airline. 

"We would be willing to negotiate with the city on this point," said Wagner.
"But we are a business, so we'll do what any good business would do." 

American declined to disclose its financial investment in improving its
three gates, ticket counters, holding areas and seating at Love. It pays the
airport about $395,000 a year in rent, Gwyn said. 

Together, the three airlines also pay a combined $76,000 in additional rent
to the airport to cover the baggage claim area. 

The "value" of the Love gates would be debatable if the airport closes,
Wagner said. 

"If the airport is closed to commercial passenger operations, we understand
that the value of our lease and those of other lessees would be diminished,"
Wagner said. "The negotiations for all of the lessees would take place in
light of that fact. Therefore, it is impossible to give you a hard figure
for how much any of the gates at Love Field are worth." 

All that tenants could claim in condemnation proceedings, Wagner said, would
be the value of the lease agreements and the value of the fixtures they've
installed. 

No matter what the city may have to pay, Wagner said the city should
consider what it will get, including commercial redevelopment of the land,
in closing Love Field. 

"They get quieter days," he said, "with fewer planes flying overhead."

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