Delta's Terminal Leases Up in the Air

Delta Air Lines Inc. is widely expected to spare Boston from its deepest cutbacks in service, but Logan officials could have one potential headache.


Sep. 28--Delta Air Lines Inc. is widely expected to spare Boston from its deepest cutbacks in service, but Logan officials could have one potential headache: They can't legally force the bankrupt airline to give back gates at its new $400 million Terminal A before 2010.

In most other terminals, the Massachusetts Port Authority, which runs Logan International Airport, can revoke gate leases if airlines slash service. But in fine print of the bond deal Massport floated in August 2001 for Delta to build the new terminal, Massport agreed to waive that right in the Delta terminal until five years after the airline began occupying the 670,000-square-foot terminal. Delta moved into its new space in March.

Massport finance director Elizabeth L. Taylor said the authority considered that a fair deal because "Delta wanted to have time to grow into the terminal. We can certainly encourage Delta to sublet gates" if that becomes necessary, Taylor said. Delta has already begun renting some of the terminal's 18 gates available for charter operators and says it continues to look for airlines that want to rent gates.

Delta spokeswoman Chris Kelly confirmed yesterday that the airline continues to discuss renting gates to other airlines. She had no comment on what Delta plans to do about terminal leases in Boston or elsewhere, saying, "Delta will respond through court filings that are publicly available."

In 2001 Massport floated $497.6 million in "special facilities revenue bonds" for Delta to build Terminal A. Delta is wholly responsible for repaying the interest and principal, and Massport has no legal obligation to cover any of the bonds if Delta defaults.

Delta filed for Chapter 11 bankruptcy protection Sept. 14, pushed over the edge by soaring jet fuel prices after Hurricane Katrina. Last month, Standard & Poor's slashed the rating on the securities to junk bond status. But the bonds have continued to trade at or above their August prices, Bloomberg data show, indicating bond traders are confident that Delta or other airlines recruited by Massport to Terminal A will keep paying them off.

Currently, Massport has no airlines asking for more gate space, spokesman Richard Walsh said. Many of Logan's 94 gates have extra capacity. One of the fastest growing airlines at Logan, JetBlue Airways Corp., already has a deal with Massport to grow to 11 gates from five in Terminal C -- Delta's former home -- between now and November 2008.

One of the only big, solvent airlines without a presence at Logan is Southwest Airlines Co. Some industry analysts say Logan is the kind of high-cost, delay-prone airport Southwest scrupulously avoids, although it did move into Philadelphia International last year to challenge US Airways Inc.

"We are happy with our steadily growing success serving the Boston market through the Manchester and Providence airports, and we are currently focusing our attention on our newest city, Fort Myers," in Florida, Southwest spokeswoman Brandy King said. "We do not have any plans to open another city in 2005." King had no comment about next year or beyond.

Because of the bond terms, Delta could act as a spoiler for any expansion plans by Southwest or other low-fare airlines by hoarding surplus Terminal A gates through 2010. Delta has a big franchise in Boston to defend. It ranked second in passenger volume last year, with 20 percent of Logan travelers, according to Massport data.

Ray Neidl, an aviation industry analyst with Calyon Securities Inc., said it is "highly unlikely" Southwest would want to come to Boston, and he doubts Delta will make big cuts here that open the door for Southwest.

"First, I doubt if Delta will be abandoning Boston, and in restructuring, they could actually become stronger," Neidl said. "Second, Logan is even more congested than Philadelphia, and Southwest probably has their hands full there right now."

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