Dallas Report: Big names, tough challenges are pervasive as airport managers meet

Dallas Report

Big names, tough challenges are pervasive as airport managers meet

By John F. Infanger and Jodi Prill

July 2002

Gerald K. One on One: Incoming AAAE Chair Jerry Olson
Gerald K. "Jerry" Olson, A.A.E., has been airport director for the Cheyenne (WY) Airport for 14 years. In May, he became chair of AAAE, at a time when frustration and uncertainty are the order of the day. Here are select excerpts from a recent interview with AIRPORT BUSINESS.

Olson is a graduate of the University of North Dakota (aviation and business management), and began his career at the Williston, ND airport. His airport, which has undergone some $51 million in capital improvements during the past 14 years, is served by United/Great Lakes and Frontier Airlines.
On the TSA and its impact on security at Cheyenne Airport …
"We're so far down on the totem pole in terms of their priorities right now, I don't really have an answer. I think if we get a [EDS] machine, and that's a question whether or not we'll even get a machine or trace detection, we'll put it out front of the airline checkout point and have people cleared with their bags, similar to immigration in Hawaii.
"I just got the MOUs (memorandum of understanding) to get law enforcement people under contract. That's causing a lot of concern among smaller airports, because if you read the MOU that you are forced to sign by the TSA, there's no guarantee that you'll get reimbursed. They say they will reimburse you, but we're going to be spending about $6,000 a month on paying law enforcement people. That $6,000 is something we budgeted for, but we budgeted for it on the expense side and we budgeted for it on the revenue side."
On the TSA deadlines ...
"It's really a Congress-imposed, TSA implementation problem, but at local airports if it doesn't get done the press shows up at the airport manager's desk."
"I'm really worried that from a public relations standpoint, the local airports are going to take the heat on that particular issue."
"As much as we want to move forward at a rapid pace, I just think that we need to make sure and take deep breaths and look around to ensure that we get a system that works, that's efficient."
On the need for TSA to listen to industry ...
"I'm afraid we'll end up with a system that doesn't work and it will be busted on their watch. They've got to listen to airlines, they've got to listen to airports. Everyone's goal is increased security, but how you get it in place needs flexibility.
"There's tremendous frustration, especially at bigger airports; smaller airports aren't on their radar screen yet. It feels like operational control is being taken away."
On potential vulnerability at smaller commercial airports ...
"We want to make sure we have the same level of security as the hub. There has to be flexilibity by tsa, but I think [EDS] machines are the way to go for our size airports.
"We need to have a system that we can stand up to the local community and say we have the same level of security as DIA has."
On general aviation ...
"The AAAE taskforce is looking at breaking up general aviation airports by size. I think that's coming. Once commercial airports are done, TSA will focus on general aviation airports.
"Is there a need for increased security? I think there is; but it's got to be done with some logic, in terms of one size doesn't fit all, and it has to be funded."
On his other post-9/11 concerns ...
"I think the key is to keep the frustration level down and have some cooperation between the players so we do it right. Airports need to be involved with airline issues. If airlines continue to lose money at the current rate, I'm convinced there will be hearings in Congress that are generated by the airline industry, and AAAE needs to be involved and have a seat at the table.
"I'm not sure Congress is just going to allow Southwest Airlines to provide the air transportation for the entire country.
"If you look at the financials, that's not so far off."

Magaw, Under Secretary of the Transportation Security Administra-tion, was the most in demand at the 74th Annual Conference & Exposition of the American Association of Airport Executives held in May. Answering two questions, Magaw says TSA will have 57,000 employees by the end of the year and he expects the agency to meet its Congressionally imposed deadlines.
He told managers that it would be a mistake to try and coordinate the industry's new security program at a national level, and that federal security directors will help localize the decisionmaking for specific airports. "You are the ones that will be calling the shots," he told airports.
Magaw also revealed that federal security directors will at times be responsible for more than one airport. For example, the FSD at Mobile, AL, will be responsible for one or two "nearby" commercial airports as well.
Meanwhile, Sen. Hutchison concedes that she and her co-legislators recognize that full deployment of explosives detection equipment at U.S. airports by year-end is unrealistic. "It's not going to be available," she says. "We know that."
Sen. Hutchison also cautions against using Israel as the model upon which to base U.S. aviation security. "Our system handles more traffic in a day than Israel does in a year," she says.
She says that she remains confident that ultimately a secure system will be in place, one that turns terrorists away from aviation as a target.
FAA Administrator Jane Garvey and Robert Crandall, former chairman of American Airlines, both addressed the current state of security, but it is Crandall's straightforward remarks that received a hearty applause.
"We have a dreadful security situation at the moment," Crandall says, "The TSA has no plan and airport executives are going to have one hell of a mess on their hands.
"After 9/11 we did things we thought we had to do. But the fact is, many months have lapsed. The government has failed to make a comprehensive plan.
"We must profile, we should profile. Let's take the resources and focus them on those that might be a threat."
Crandall also believes that the deadlines Congress mandated for TSA are unrealistic. "We can't meet these ridiculous timeframes," he says, "I don't think anyone told Congress you can't do this. EDS cannot be done by December 31st and every human in the U.S. knows it."
Regarding funding, Crandall says, "The money has to come from the general funds of the U.S. because this is a national defense issue."

Aip update
On hand to discuss the Airport Improvement Program were FAA Associate Administrator for Airports Woodie Woodward and FAA Director of Airport Planning & Programming Catherine Lang. According to Wood-ward, all available monies for the program in FY2002 have been released. She also stresses that AIP has not had any money go directly to TSA, though some $200 million was distributed from the discretionary pot for "traditional" security programs.
Lang stresses that a key challenge for AIP will be Congressional funding reauthorization following the recent three-year plan brought about by AIR-21. It comes at a time when the highway reauthorization is up for renewal, and a question in Washington is whether or not the two should be acted upon concurrently.
Lang also calls for more flexibility in determining AIP eligibility, particularly in terms of getting more money for use at smaller airports.

The insurance crisis
Among challenges facing the industry, one gaining momentum that could become most dire is insurance. That's the picture painted by two industry reps: David W. Baker, senior vice president of AIG Aviation, Inc.; and Phillip J. Dressen, ARM, president, AON Risk Services, Inc.
Dressen says estimates of premium increases for industry segments break out as follows:
o Airlines - up 500 percent
o FBOs, airports, aircraft, and manufacturers - up 50 to 100 percent.
More specifically, Dressen says a private jet owner paying $26,000 for insurance a year ago now is paying $42,000, but with war risk insurance taken out. That addition could bring the tab to $73,500, he says.
A fixed base operation with $3 million in annual sales, he adds, might have paid $77,500 a year ago and pays some $120,000 today. On top of that, he says, "hangarkeepers' liability is a total train wreck."
Much is behind the insurance crisis, with the obvious September 11 attacks among them. Yet, despite significant other aviation losses, the insurers indicate that a poorly managed insurance industry itself during the 1990s, and the resulting consolidation among insurers and reinsurers, are major factors. According to Dressen, the financial strength of the insurance company should be the top consideration among consumers, followed by coverage and cost. Historically, he says, the order was reversed.
AIG's Baker explains that industry-specific causes that have impacted rates include an increase in losses; an increase in the size and value of business aircraft; airline losses, which can reach $1.2 billion or more for one incident; and a strained system (ATC; airport infrastructure).
Baker says airports have an advantage over tenants because although rates are higher, coverage is still available. Tenant operations, he says, are finding that some coverage is hard to find or limits are sharply reduced.
Both men stress that airports reevaluate what requirements they may have with FBOs and others in light of the fact that the companies may not be able to find specific insurance or limits. "You need to be aware of what your tenants are facing," comments Dressen.

To build or not
Today, many airport managers are faced with a difficult question: Do they move forward with airport development, with the possibility of having to adjust it according to any new TSA mandates, or delay it until the TSA takes action, and risk the possible loss of more revenue?
Thomas Strange, president of Decision Support Technologies, Inc. addresses the issue of increasing security and decreasing revenue. His solution is a commercial revenue management system, which as he says, "collects information [and] helps you analyze and then deliver that information to your core financial group."
As Strange explains, the technology, which is connected to the "back office accounting system," allows airports to increase revenues through improved collections, tenant employee tracking, tracking changes made by tenants, and more.
Paul Blue, deputy aviation director, Phoenix Sky Harbor International Airport, relates that, at his airport, PHX's Terminal 3 was undergoing renovation, with plans for Terminal 4's renovation in the works. They planned to increase the number of shops, concepts, square footage, sales, and revenue of Terminal 4.
"Clearly 9/11 made a lot of changes and we had to hold all our capital development," Blue says.
He explains that the airport held an industry meeting, bringing together all business partners. What they came up with was a plan to weather the impending loss of travelers and the subsequent loss of concessions.
One of the first steps was a rent relief package for tenants, which Blue says impacts the airport by $2.95 million, but helps the business partners maximize their cash flow. The package included an "elimination of the Minimum Annual Guaranteed (MAG) rent for retail and rental car agencies for the months of September through December 2001 [as well as] elimination of the MAG rent for the Terminal 4 food and beverage concessionaires and all other miscellaneous concessions for the month of September 2001."
The airport also offered non-financial assistance to their business partners by adjusting operating hours to correlate with flight schedules, sponsoring marketing and sales workshops, serving as a security liaison, providing prompt communication with the tenants, improving signage to inform travelers of wait times, and performing closer monitoring of concession sales.

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