Delta Cedes Space at Logan's Terminal A

Dec. 17 -- Bankrupt Delta Air Lines Inc. reached a deal with airport officials and Wall Street firms late Friday that could pave the way for other airlines -- including top US discounter Southwest Airlines Co. -- to move into Delta's $500 million terminal at Logan International Airport.

After months of concern that Delta's bankruptcy could leave the gleaming, 21-month-old terminal a white elephant and huge financial liability for Logan, the pact outlines a plan for paying off construction debts. It also calls for Delta to give up more than one-third of its space in the terminal, whose 22 gates can serve 18 big jets and seven smaller "regional jets" parked on the tarmac.

Speculation has abounded about which airlines might want to move into Terminal A. Discount carrier AirTran Airways, which now occupies four non contiguous gates in a dingy corner of Terminal C, has been seen as a leading contender, but has said it fears gate rentals in Terminal A could be too expensive.

Continental Airlines and Northwest Airlines, which are in C and E, respectively, and are partners with Delta in a frequent-flyer and airline-lounge network, have also been seen as candidates. But they too have said they fear it would be too expensive and not worth the disruption involved in relocating. JetBlue Airways Corp. is committed to staying in Terminal C and expanding into three more gates there through 2008.

On Friday, Thomas J. Kinton Jr., chief executive of Massachusetts Port Authority, which runs Logan, said he could see a scenario in which Southwest winds up at Logan. Airport officials would relish having the country's biggest discount carrier at Logan, both for the cheaper service it would offer in its own right and the pressure it would put on other airlines to cut fares. This would save Logan passengers money and potentially increase overall aviation business at Logan, making Massport and its concessionaires more money.

Dallas-based Southwest began serving Greater Boston through the Manchester Boston Regional Airport in New Hampshire and T.F. Green State Airport in Warwick, R.I., in the late 1990s. It typically has avoided major city airports because of their cost and congestion and focused on targeting markets through secondary airports. But in recent years, Southwest has moved in to the main airports in Philadelphia and Denver.

The recent round of airline takeover proposals -- including US Airways' s $8.8 billion hostile bid for Delta, AirTran's $290 million hostile bid for Midwest Airways, and last week's talk of a United Airlines-Continental Airlines merger -- has led to speculation Logan could soon be looking at a big round of gate reshuffling among merged carriers at its three domestic terminals.

"Once one of those mergers gets done, it's off to the races," Kinton said. "I think Southwest will no longer be able to stay out of Boston, along with many other cities in the country" that the low-fare carrier has eschewed as too expensive and congested for its low-fare, quick-turnaround operation. Southwest has also said that if US Airways and Delta do merge and federal antritrust regulators force the combined airline to divest assets like airport gates and a Boston-New York shuttle, it would consider bidding for them.

Southwest representatives could not be reached for comment yesterday but have repeatedly said in the past they are pleased with the results of serving the Boston market from Providence and Manchester. At both airports, Southwest accounts for over half the passenger volume.

The Logan terminal settlement, proposed to Delta's bankruptcy court shortly before midnight Friday, calls for Delta to remain in Terminal A, but give up 107,675 of the 287,761 square feet it now leases there.

Although the $497.8 million in bonds for the terminal were sold through Massport, Delta legally had the full obligation to repay them. Under the new deal, Delta would be absolved of that obligation. Whatever rent Massport collects from Delta and other airlines would go toward paying the bonds; whatever was left uncovered after available reserve funds set up for the bonds are depleted would be paid back by Ambac Assurance Corp. , a Wall Street "bond insurance" company Delta hired to repay the bonds if it went bankrupt. Massport won't face any financial liability for the terminal that could force it to raise parking rates or other charges on Logan customers and airlines.

Delta spokeswoman Gina P. Laughlin said yesterday, "We are pleased to have reached an agreement with Massport regarding Delta's Terminal A facilities in Boston. This necessary step in Delta's transformation plan allows us to achieve our restructuring goals while maintaining our commitment to the community and customers."

Laughlin said Delta is committed to remaining a big carrier in Boston. In March, she said, it plans to add a second daily non stop flight to Nashville .

The Delta terminal deal faces a Jan. 10 deadline for creditors to make objections before a judge could give it final approval Jan. 18.

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