New Economics: Technology, use and lease agreements lead discussion at this year's ACI-NA conference

Inside the Industry New Economics Technology, use and lease agreements lead discussion at this year’s ACI-NA conference By Jodi Richards June 2004 SAN DIEGO — At the Airports Council International-North AmericaEconomic...

Some essential attributes of use and lease agreements include: the formula that determines the landing fee and the terminal rent; provisions that govern facility use and control; provisions that govern the capital program and prescribe how it is controlled; provisions for financial assurances.

“The key issue in the negotiations of these deals is to what extent will the airport share non-airline revenue with the airlines,” says Lewis. “Under federal policy, in the absence of an agreement, airports don’t have to share any of their non-airline revenue with the airlines.”

  • Because different airlines have such different business models, the presumption that all the use and lease agreements will be the same for all the carriers at your airport is not secure. However, says Lewis, this problem may disappear in the years to come if the business models of the low-cost carriers and legacy carriers converge, as many predict.

A few other considerations: How are preferential gates assigned? What rules are used for accommodation? What are the rules for recapturing underused gates and reassigning them to other airlines?

  • Use and lease agreements should not impair the airport’s ability to optimize the use of its facilities. In particular, this is an issue for airports that have capacity constraints “It’s often the case that airlines will resist regulating use of facilities to optimize efficiency,” explains Lewis. And therein lies the dilemma — airlines don’t want to pay for capital expansion, but they also do not want to help optimize facility use.

As for majority in interest agreements, Lewis says the case for retaining them is now weak. “Consider why you’re giving up control of your capital program,” he says. “What are you getting in return? Is it worth it?”

  • In today’s environment, airline financial assurances need to be questioned. Lewis says airports only need to look at Pittsburgh International Airport and the challenges it is facing with US Airways.

“Be careful that your agreements give you real financial security,” adds Lewis.

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