The agency overseeing BWI violated state law by not telling legislators it had agreed to pay an annual subsidy of up to $5.5 million to keep British Airways flying out of the airport, according to a legislative audit released yesterday.
As a result, the Maryland Aviation Administration owes the carrier $3.4 million in state funds to make up for not meeting financial targets while it operated direct daily flights between Baltimore and London's Heathrow Airport for two quarters in recent years.
Industry professionals say such deals are common at airports, but some economists oppose the subsidies as an intrusion on the free market.
British Airways is the flagship carrier at the airport's International Pier.
The disclosure of the report two weeks before the Nov. 7 election prompted state Transportation Secretary Robert L. Flanagan to accuse the Office of Legislative Audits - generally regarded as a nonpartisan watchdog - of political bias.
"The auditors are subject to being hired and fired by the Democratic leadership of the House and Senate, and there are no safeguards against partisan politics being involved," said Flanagan, an appointee of Republican Gov. Robert L. Ehrlich Jr., who is in the midst of a tough re-election race.
Flanagan disputed the auditors' assertion that the subsidy had to be cleared with legislators, and he warned that disclosure of the agreement could hurt business at Baltimore-Washington International Thurgood Marshall Airport and complicate its relationship with the airline, which was not named in the report.
In its formal reply to the audit, the Transportation Department suggested that the matter could have been resolved without public disclosure of the deal. The department charged that the report did so for reasons that do not "reflect well on the allegedly nonpartisan role of the auditors."
The auditors said that granting the department's request to withhold parts of its report would violate its mandate to report to the General Assembly and the public.
Bruce A. Myers, the legislature's chief auditor, said the report was the regular financial audit that state agencies are required to undergo every three years and it was released this close to the election because the department sought a two-week extension of its deadline to craft a reply.
Myers said the MDOT letter was the first time in his three decades with the auditors' office - the past nine as chief - that an agency had questioned his staff's nonpartisan credentials.
"We're independent, nonpartisan and we're calling them as we see them - before and after the election," he said.
Karl S. Aro, who as executive director of the Department of Legislative Services is Myers' boss, said the auditors are "playing this straight - like they do with every other audit."
Aro said it is not unusual for the auditors and a state agency to disagree over a legal interpretation, but he said the office takes care not to divulge "proprietary or damaging" information.
While Myers declined to name the airline, the report and the Transportation Department's reply indicated that it was one of the limited number of international carriers serving BWI. Flanagan confirmed it was British Airways.
The key disagreement between the auditors and the department hinges less on the specifics of the deal than on the legality of making a commitment to underwrite an airline's operations at BWI without informing the legislature's budget committees. The auditors contend that state law required the department to inform lawmakers of commitments greater than $250,000.
Flanagan accused the auditors of "coming up with their own legal opinion" of budget language in a way that contradicts the interpretation of the assistant attorney general who advises his department.
"The auditors are not lawyers. In some respects, they've exceeded their area of competence," he said.
But Bonnie Kirkland, an assistant attorney general in the Office of Counsel to the General Assembly, said: "I reviewed that and I thought the auditor was legally correct."
The deal questioned by the auditors involved a commitment made in late 2004 by the aviation administration and the Maryland Department of Business and Economic Development to provide a financial incentive to British Airways to remain at BWI at a time of lagging profits on its business here.
Flanagan said the state's agreement to provide up to $5.5 million to BA each year is an excellent investment for the airport, which for a long time has had trouble retaining international carriers because of its proximity to Philadelphia and Washington.
"This carrier generates $90 million a year in economic development to the state of Maryland," he said.
Timothy L. Campbell, executive director of the Maryland Aviation Administration, said the state ended up owing money to the carrier to make up for lagging revenue during two quarters in 2004-2005 when fuel prices spiked. But he said BA's business at BWI is now much stronger.
"It's doing very much better. The airline is in fact really quite astonished by the rebound in traffic," he said.
BA spokesman John Lampl said the "proprietary agreement" is not unusual. "We have such agreements in other parts of the world," he said.
Flanagan said the BA subsidy is not the only airline incentive deal BWI has entered into.
Darryl Jenkins, a Washington area airline consultant, said a $5.5 million annual subsidy would be a large one by industry standards but BWI needs to keep BA to keep from losing other business.
"British Airways is a very big deal for them [BWI]. They should probably be thankful they have that deal. With that size of a loss, the airline would have been gone already," he said.
But Thomas A. Firey, senior fellow at the Maryland Public Policy Institute, a libertarian-oriented think tank, questioned whether Maryland taxpayers would miss having the airline at BWI.
"Business should have to bear its own risks, and this is clearly a case of where government is telling one of the biggest companies on the planet that we'll protect you from risk. Either British Airways is willing to fly out of BWI and take the risk or they're not," he said.
George Liebmann, executive director of the conservative Calvert Institute think tank in Baltimore, said the airline incentive was "probably more defensible than most subsidies of this type." But he said such deals need to be disclosed.
"In principle the state should not be giving subsidies of this nature without some sunlight being cast on them," he said.
But Flanagan said too much disclosure puts the state at a competitive disadvantage. "Giving specifics about the dealings with one airline makes it more difficult to deal with the others," he said.
Sun reporter Meredith Cohn contributed to this article.
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