LAX May Buy Back Terminals to Increase Flights

Five carriers at LAX control a majority of the gates leaving the airport unable to grant requests by other airlines to add flights.


Hoping to increase capacity and lower fares, the city's Airport Commission will consider as early as today spending up to $154 million to take over several terminals at Los Angeles International Airport so it can offer more airplane parking spots to low-cost carriers.

For years, airlines such as Southwest have vied for more gates at LAX. But five carriers, under long-term leases, control a majority of airplane parking places at the aging facility, leaving the city's airport agency unable to accommodate multiple requests by other airlines to add flights. More than 60 passenger airlines currently offer service at LAX.

To receive those long-term leases, airlines used bonds to finance improvements to most terminals. The terms of the leases, airport officials say, allow the airport agency to take control of the terminals if it buys back the bonds. The agency is proposing that it pay the balance on the bonds for Terminals 2 and 5.

"I do believe it will increase competition at the airport and produce immediate gains in nonstop service and, particularly where new service is by low-cost airlines, produce lower fares for Los Angeles-area consumers," said Samson Mengistu, deputy executive director for administration and finance at the city's airport agency.

Los Angeles World Airports, the city agency that operates LAX, said in reports to the commission that it would use cash and credit to repay the bonds.

At least one airline was heavily lobbying as late as Friday to postpone the matter until a meeting between the two sides could be scheduled. Even if the commission agrees to a delay, airport officials indicated they were committed to taking control of their facilities.

The agency said the move shouldn't come as a surprise to the airlines, particularly Delta, which was notified in a Bankruptcy Court filing last year that the agency planned "as soon as possible" to end the airline's Terminal 5 lease.

Delta said Friday it's concerned about the effects a terminal takeover plan by the city might have on Delta's operations at LAX, including new international service.

Over the last several months, Delta has met with Los Angeles World Airports and the mayor's office "to discuss our significant international expansion plans into Mexico and Latin America from Los Angeles International Airport," said Anthony Black, an airline spokesman. "Our goal remains to work with LAWA and the commission to understand their intent."

The organization representing carriers that operate in Terminal 2 declined to comment Friday.

If the takeover proposal is approved by the commission, it's likely to exacerbate already tense relations between the airport agency and airlines at LAX. Commissioners voted recently to double maintenance fees paid by carriers, leading them to lobby the City Council to review the increases. The agency relies on landing fees and terminal rents and charges, along with receipts from concessions and parking, for most of its funding.

In what it now calls an outdated arrangement, the agency controls only 3 1/2 of the nine terminals at LAX. The proposal on today's commission agenda is expected to be the first wave of a broader push to regain control of all of its facilities.

Financial analysts applauded the move, saying that unlike other, roomier major airports, the 3,586-acre LAX is unable to expand and is already operating at 40% above capacity, forcing it to find other ways to accommodate more flights. The terminal takeover proposal also comes as officials continue to debate a long-term plan -- already 12 years and $150 million in the making -- for modernizing LAX.

"In the past they looked at trying to develop a whole new airport, and that was somewhat controversial and the community didn't support it," said Jessica Soltz Rudd, an analyst at Fitch Ratings in San Francisco. "To gain capacity and increase utilization of the airport, they really need additional terminal space, and this is the way to do it."

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