Airports Fight It Out in Los Angeles
The tug of war between Los Angeles World Airports and Ontario city officials over control of LA/Ontario International Airport has picked up steam over the past few weeks, but the issue appears unlikely to be resolved any time soon.
Ontario has been vying for control of its local airport for three years, contending that LAWA officials have neglected the regional airport in order to focus on the $4.11 billion terminal modernization program at Los Angeles International Airport.
Ontario handed over operations of the airport, 39 miles east of downtown Los Angeles, to LAWA in 1967 and later transferred ownership in 1985, but now the city wants its airport back and says it is willing to offer $50 million to retire debt.
“We found that we are the only airport in Southern California not rebuilding enplanement numbers after the recession,” said Alan Wapner, an Ontario city councilman who acts as LAWA liaison. “We were continuing a downward spiral.”
LAWA officials attribute the 35% drop in enplanements at LA/Ontario over the past four years to the recession, but Ontario officials claim mismanagement is the problem. Because the airport is a major economic driver in the Inland Empire region, Ontario is willing to take the issue all the way to the courthouse, if necessary, Wapner said.
The Ontario City Council has passed a resolution authorizing the city attorney to bring a lawsuit against LAWA and could take that step in coming months if Ontario officials don’t feel like they are making progress in efforts to regain control of their airport, Wapner said.
On July 14, Moody’s Investors Service downgraded Ontario airport’s $73.9 million of outstanding revenue bonds to A3 from A2, maintaining a negative outlook and citing ONT’s narrowed financial margins resulting from greater than average declines in enplanement levels in the last three years.
“Moody’s expects enplanement levels to remain at or near current levels with the key risks to that stability being potentially negative impacts from fragile economic conditions,” the report said.
The bonds carry A-minus ratings from Standard & Poor’s and Fitch Ratings. The steepest decline in enplanements at ONT occurred from 2008 to 2009 when they fell 25.9% from 3.54 million in 2008 to 2.63 million in 2009, according to LAWA’s comprehensive annual financial report for fiscal 2011. Total enplanements at the Inland Empire airport as of fiscal year-end 2011 were 2.36 million, the report said.
“We asked the city manager to find out why the business was declining and we found it was too expensive to fly out of here,” Wapner said. “We are the most expensive mid-size airport. We are the only one where the primary, being LAX, is cheaper to fly out of than the secondary.”
The per passenger enplanement fee that the Ontario airport charges airlines is $14.50, while LAX charges $11, John Wayne Airport in Orange County charges $7 and Long Beach International charges $5, Wapner said. He said the reason Ontario’s enplanement fee is so high is because LAWA is assessing 15% administrative costs on the airport’s budget at a cost of $9 million annually.
According to Wapner, if Ontario ran the airport, it could lower administrative overhead, and more effectively attract businesses to airport property.
The city has had several offers from manufacturing and logistics companies to rent land at the airport, but Wapner said the deals have died because LAWA is trying to charge Los Angeles lease rates rather than the lower Inland Empire market rates.
Since LAWA only benefits from rents, and not from sales taxes, it isn’t as motivated to strike a deal on rents as Ontario would be, Wapner said.
LAX also experienced a significant enplanement decline from 2008 to 2009 with its numbers dropping by 9% to 28.3 million in 2009, but the airport has recovered much of the lost ground, posting 30.2 million enplanements in 2011, according to the CAFR.
Los Angeles International is more than midway through more than $4 billion in major renovations to modernize the terminals and make the facility more competitive with other California airports. LAWA has already issued $3.5 billion of bonds to pay for the construction, but it plans to issue another $250 million in bonds by mid-year, according to officials.
LAWA officials denied that Ontario has been neglected while improvements are made to LAX.
“Since it was built, LAX has been neglected compared to ONT,” said Mary Grady, a LAWA spokeswoman. “Two new terminals were built at ONT at a cost of $276 million before any were built at LAX. An inline baggage system was built at ONT at a cost of $70 million before any such system was installed at LAX.”
Mixed signals are emanating from Los Angeles, where the LAWA board of commissioners and the Los Angeles City Council appear to be drafting conflicting resolutions.
During its regular board meeting on Monday, the Los Angeles Board of Airport Commissioners asked staff to prepare a resolution stating that ONT is not available for transfer for two years until the cities of Los Angeles and Ontario have come out of the current economic downturn, Grady said.
“This isn’t the time to transfer the asset,” said Commission President Michael Lawson.
In a statement released last week, LAWA executive director Gina Marie Lindsey said LAWA has invested $560 million in capital improvements to modernize LA/Ontario airport using a combination of LAX and ONT funds, so it isn’t motivated to just give it back.
Now that LAWA has done the work and invested significant time and money, Ontario wants Los Angeles to give the airport back to them for $50 million, Lindsey said, a price that doesn’t come close to the value of the facility or to the value that Los Angeles has invested.
The resolution requested by Lawson will outline broad parameters that would have to exist to re-open any discussions about a transfer or a sale, Grady said. In response to a question about LAWA’s plans to lower costs and increase enplanements at Ontario, she said staff was also asked to prepare a report that lays out a plan for the future of the facility.
Meanwhile, on Tuesday, two Los Angeles City Council members introduced legislation that appears sympathetic to the Ontario cause. Dennis Zine and Bill Rosendahl introduced a resolution that asked LAWA with the help of city attorneys to research the issue of returning LA/Ontario airport to local control.
The study parameters would include exploring ways to increase air travel at the airport, determine its fair-market value, and analyze Ontario’s offer to resume control, according to the resolution.
“I introduced the motion because I believe in regionalization, local control, and that competition is positive for the airports as well as the traveling public,” Zine said. “The success of the Ontario Airport could potentially relieve traffic on Los Angeles-area freeways and roads and could create maximized airport efficiency in the region.”
Zine said he recently visited the Ontario airport for the first time and was concerned with the lack of passenger traffic and closed retail outlets.
“The airport appeared to be underutilized,” Zine said. “I have also seen the reports that the Ontario Airport is losing money, that passenger count is down, and that traffic demand has substantially declined over the years, so I want to look at LAWA’s plan for increasing passenger traffic at the Ontario Airport as well as the possible sale or transfer of this facility.”
The motion simply allows the city to research all of the options available, Zine said.
The resolution has to be heard and approved in the council’s trade, commerce and tourism committee before it would head to the entire council for a vote.