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"DIA’s major airlines pan $1.3 billion deal for terminal renovation over costs and security plan"


 

Thursday, June 29, 2017

 

DIA’s major airlines pan $1.3 billion deal for terminal renovation over costs and security plan 

Letter to airport chief seeks delay in partnership contract, but officials push back on some concerns

By Jon Murray

The Denver (CO) Post

 

                                                                            The Jeppesen Terminal at Denver International Airport is pictured in this 2011 file photo.

 

A big potential snag has emerged in Denver International Airport’s plan to move its main security checkpoints upstairs, expand passenger capacity, and add food and retail options to the terminal in a $1.3 billion renovation deal.

 

DIA’s major airlines object to security plans, overall costs and other aspects of the 34-year partial privatization arrangement, including its duration. They have requested a four-month delay, making their concerns clear in a letter sent just a month before the City Council is set to consider a massive contract.

 

“Simply put, this is not a sound investment — there are entire airport terminals being built around the globe for the cost of the current proposed project,” says the June 21 letter, which is addressed to DIA chief executive Kim Day and signed by representatives of United, Southwest, Frontier and five other airlines, plus the United Parcel Service.

 

Last week’s letter has set off a flurry of meetings and discussions among the airlines, DIA officials and other city officials. Those include Mayor Michael Hancock’s chief of staff, Alan Salazar, and council members who also received copies — and who themselves still have questions about the terminal project.

 

“It’s definitely a concern to us, because we’re going to have to approve a contract … and we haven’t even seen it yet,” said Councilman Wayne New, who was surprised by the airlines’ concerns. “We feel the same way — that we’re being rushed. It’s just not ready, in my opinion. We just need more time.”

 

Day responded to the airlines’ letter the next day, writing on Thursday that airport officials were committed to addressing the concerns expressed by the airlines as design work proceeds on the terminal renovation, dubbed the Great Hall project.

 

But she resisted the call for a 120-day delay, writing that any change in timeline “would risk millions in unnecessary termination fees.” And she chalked up some of the airlines’ claims to “misconceptions.”

 

DIA is finishing 10 months of negotiation on a public-private partnership deal with a team led by Madrid-based Ferrovial Airports and Centennial-based Saunders Construction.

 

In the airlines’ letter, obtained by The Denver Post, they express worry that they will shoulder higher rates and charges at DIA to help pay for a massive project and partnership deal that they don’t think the airport has fully justified by sharing enough information. Other signers include representatives of Delta, American, Spirit, JetBlue and British Airways.

 

A rendering shows how the main floor of Denver International Airport’s terminal might look after one of the main security checkpoints is moved to the upstairs level. Plans call for more concessions in a post-security gathering area before passengers go downstairs to take trains to the concourses.

 

One question: Will passengers linger in terminal?

 

The airlines question several elements of the plan, including whether revamped security checkpoints will work as smoothly as advertised once they’re moved to the north ends of the ticketing level. The resulting consolidation of ticket counters on the south ends could result in a space crunch for airlines, the letter says. The carriers also question whether adding extensive concession space on the terminal’s main floor — past security, but before passengers take trains to the concourses — even makes sense.

 

“Despite our best efforts working with the airport, we find ourselves with significant concerns on both the financial and operational fronts,” the letter says. “We are extremely concerned that the current accelerated timeline dictated by the Ferrovial contract precludes us from addressing and evaluating all of the issues with hard data that the airport and airlines can feel comfortable with.

 

“Consequently, based on the limited information we have today, we cannot support the Great Hall project in its current form.”

 

The nine carriers make up DIA’s standing Denver Airlines Airport Affairs Committee. The new missive includes copies of two previous letters from the committee, going back to early 2015, that more quietly voiced concerns about the Great Hall project.

 

DIA officials contend that their terminal plan is solid, saying long lines for coffee and food show the airport is in need of more concessionaires everywhere.

 

The airlines’ letter cites a small increase in concession revenue as a poor justification for the project. But Day maintains that more concessions are a side benefit to the main forces behind the project: making security screening less vulnerable and more efficient, and expanding the terminal’s capacity, in concert with planned gate expansions. DIA projects airport traffic could pass 60 million passengers this year.

 

“We want to be clear that the terminal concessions are not the motivation for the project or the underlying business case,” Day wrote in her response.

 

In contract details released so far, Ferrovial would split the upfront costs of a four-year renovation project that’s estimated to cost $650 million to $775 million. Ferrovial then would operate the expanded concessions in the terminal for 30 years, pocketing 20 percent of food and retail vendor revenue generated while giving DIA the rest. Meanwhile, DIA would pay an estimated $30 million to Ferrovial each year for maintenance and repayment of its project financing costs.

 

Costs of deal for DIA could reach $1.3 billion

 

The total cost to DIA over 34 years is estimated at $1.3 billion, the airlines revealed in their letter. Day has said the costs would exceed $1 billion, and airport spokesman Heath Montgomery didn’t dispute the firmer figure Tuesday.

 

He also didn’t dispute the airlines’ assertion that DIA would front about $400 million of the upfront renovation costs and see a rough increase of $5 million in annual revenue from the expanded concessions, based on their briefings.

 

A preliminary agreement with Ferrovial gives the city until Sept. 1 to strike a deal, giving the council a short timeline for approval once it receives the contract in late July.  DIA could owe the preferred bid team a walk-away fee of up to $9 million, unless Ferrovial consents to a delay.

 

One point of contention mentioned in the airlines’ letter is that they were told their fees at DIA wouldn’t increase as a result of the project, a point that Day and other officials have disputed. Montgomery said the airlines’ interest in keeping their fees the same is clear, and he noted that they have opposed previous major projects, including the decision to build DIA itself three decades ago.

 

City and airport officials met with this week with some airline representatives.

 

“Kim (Day) and her team have offered to sit down with the airlines and their experts and take some time over the next couple of weeks to answer their questions, get on the same set of facts and move this very essential project forward,” said Salazar, Hancock’s chief of staff. “So the ball is really in the airlines’ court on that.”

 

Below are the airlines’ letter and DIA’s response:

 

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