"Palo Alto sees money in its airport if it can end lease with county"

["Stephen Irwin" <stepheni@xxxxxxxxxxxxxxxxxxxxxx>]

Wednesday, May 16, 2007

Palo Alto sees money in its airport if it can end lease with county
By Kristina Peterson 
The San Jose (CA) Mercury News


The Palo Alto Airport could become a major money maker for the city if it
takes over the operation from Santa Clara County, according to a report
released Tuesday.

"This is so wildly cash-flow positive that from a management point of view,
people should rush to this," said Rick Ellinger, a member of the Palo Alto
Airport Working Group, the author of the report.

The nearly 300-page report on the airport's economic viability includes a
unanimous recommendation from the group that the city negotiate early
termination of the county's 50-year lease on the facility. That lease
expires in 2017.

The report also calls for the city to either operate the airport itself or
contract the work to a nonprofit in order to stay on top of maintenance and
federal grant applications.

The county has expressed an interest in early termination of its lease after
a lengthy debate with the city over the airport's profitability.

The county says its analysis shows that capital investments in the airport
have not paid off, and it can no longer afford to subsidize the operation.
The county also operates the Reid-Hillview and South County airports.

"We've overall invested more in the airport during the term of our lease
than we've recouped in revenue," Michael Murdter, the county's Director of
Roads and Airports, said Tuesday.

"The fundamental question for us is, `Why continue to shoulder all the
business risk of running the airport when it's not even a county-owned
facility?"' added Murdter, who expects to enter preliminary talks in June
with Palo Alto concerning the lease.

Chuck Byer, editor of the working group's report, said if Palo Alto takes
over operations, it could make a tidy profit even before 2017, when
ownership of airplane hangars currently operated by independent "fixed base
operators" transfers to the city.

"Projecting to 2017, the numbers are very attractive. The next five years,
to 2022, are even more attractive," Byer said.

In recent years, the airport as a whole, including the county and its two
independent operators, has turned an annual net profit of slightly more than
$1 million, the group estimated, based on data from 2000 to 2004.

"I have no doubt it could be run very, very profitably," said Pat Roy, owner
of Roy-Aero, which has run most of the single-occupancy hangars at the
airport the past 28 years.

"It's not logical to think two businesses would be here for long periods of
time if it was not profitable," Roy said.

But group member Pat Burt emphasized that the report is not intended to spur
hasty action.

And many issues remain unresolved, including whether airport expansion would
affect the nearby environmentally-sensitive Baylands. The report notes that
increasing the number of hangars would likely increase the airport's
profitability, but does not propose an expansion.

The Palo Alto City Council is expected to discuss the report June 4.

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