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"Airport Bonds -- Conference Call Summary and Draft Letter"

October 8, 2001 

Airport Bonds -- Conference Call Summary and Draft Letter

On Friday, October 5, staff from AAAE and ACI-NA participated on a
conference call organized by The Bond Market Association on the subject
of legislative proposals to address issues surrounding airport bonds in
the aftermath of the September 11 attacks.

Participants in the call included a wide array of financial
representatives from: The Bond Market Association, JP Morgan Securities,
Lehman Brothers, Morgan Stanley, Bear Stearns, MBIA, Paine Webber,
Goldman Sachs and others.  In addition to staff from AAAE and ACI-NA, a
number of airports were represented on the call including: PANYNJ, MWAA,
DFW, Salt Lake City, San Francisco, Denver, Burlington, Grand Rapids,
Port of Portland and Indianapolis.

The group spent approximately an hour discussing a variety of
legislative proposals relating to airport bonds.  While not achieving
universal consensus, it appeared that a significant number of airports
participating in the call believed that a reclassification of private
activity bonds as "governmental" to allow for advance refunding (to take
advantage of lower interest rates) would be beneficial to airports.

The Bond Market Association has developed a letter to send to Capitol
Hill (aimed at the House and Senate Leadership as well as the House Ways
and Means Committee and the Senate Finance Committee) with the idea of
gaining individual airport signatories, under the theory that a letter
from a bunch of financial institutions looked too self-serving.

If you believe that advance refunding would be beneficial to your
airport and want to sign-on to the letter, please respond to this email
by COB Tuesday, October 9.

The text of the letter is embedded below and is also attached.


The aviation sector is a linchpin of our economy, helping to ensure our
global competitiveness. Without a vibrant aviation industry, our nation
as a whole will suffer.  Congress recognized this fact when it swiftly
moved to provide an infusion of immediate cash and implement a program
of loan guarantees to the airlines in the aftermath of the terrorist
attacks of September 11.  Airports and airlines are inextricably linked
and airports have faced exponentially greater challenges in immediate
aftermath of the tragedies.  Airports, at the direction of the Federal
Aviation Administration, have put in place immediate increased security
measures which are extremely labor-intensive.  As a result, airports
costs have risen dramatically at the same time that their revenue base
is under greater challenge than at any time in the history of aviation.
The bulk of airport revenues are derived from funding sources which rely
on traffic-landing fees, parking revenues, concession revenues and the
like.  Airport revenues are down 40-50% at the same time that their
costs have increased to pay for mandated security measures.

In response, airports have sought relief from Congress.  While not
seeking compensation for lost revenues, airports have asked for direct
reimbursement for new, federally mandated security requirements,
including immediate deployment of increased law enforcement personnel
throughout the airport.  Airports have also asked for temporary changes
in the Airport Improvement Program and the Passenger Facility Charge
statutes designed to provide flexibility to free-up dollars for
immediate operating expenses.  In addition, airports have sought federal
help in addressing issues related to war risk insurance (which has been
cancelled for airports).  We fully support these changes and urge their
quick enactment.  In addition, we urge Congress to amend tax laws which
inappropriately penalize airports when borrowing in the capital markets.

Inarguably, airports are public entities which serve vital public
purposes.  That fact has been emphasized repeatedly in the aftermath of
the terrorist attacks.  Unfortunately, federal tax law unfairly
classifies tens of billions of dollars in outstanding airport bonds as
so-called "private-activity" bonds.  As a result, airport bond issuers
are charged higher interest rates on their borrowing than they otherwise
would pay and are unable to "advance refund" outstanding bonds to take
advantage of lower interest rates.  Reclassifying these airport bonds as
"governmental" would save airports millions in financing costs and would
allow airports to take full advantage of historically low interest rates
in today's market to refinance outstanding debt.

Airports depend on efficient access to the capital markets to finance
billions of dollars in capital investment.  Inappropriately
characterizing many airport bonds as "private-activity" fails to
recognize the vital public purpose that airports serve and costs
airports millions in unnecessarily high interest costs.  In the interest
of providing much needed assistance to airports in this time of economic
uncertainty, we urge Congress to reclassify all airport bonds as
"governmental" and to take the other steps outlined above to ease
financial burdens.

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