Delta lease at Hartsfield-Jackson hits turbulence

The proposed renewal of a long-term lease with Delta Air Lines has major implications for the world’s busiest airport, the planet’s biggest airline and possibly for millions of passengers who fly out of, or through, Atlanta.

Delta and Mayor Shirley Franklin are sprinting to get the deal done before a new mayor — and a new administration — takes office early next year.

The proposed seven-year contract between Delta and city-run Hartsfield-Jackson International Airport recently has become something of a tug-of-war, with Franklin and Delta officials pushing to get the deal done, and airport General Manager Ben DeCosta and the Federal Aviation Administration urging caution.

Now Delta, the airport’s biggest tenant, is in negotiations with the City Council and its airport oversight panel, the Transportation Committee.

“This is a big deal,” Franklin said late last week as she lobbied for the new contract, the first new lease with Delta in 30 years. She said the lease ensures continuation of a relationship that has helped make metro Atlanta a regional powerhouse.

The current lease expires next September, but Franklin wants the City Council to approve the new contract by its last meeting this year in early December so she can sign it before she leaves office. The council, though, has given little indication which way it is headed, and the possibility of a delay has the mayor and Delta scrambling.

“It takes whatever time it takes,” Councilwoman Felicia Moore said last week during a discussion of the lease before the Transportation Committee.

Much at stake

Among the things at stake in the lease deal are a new $1.4 billion international terminal, the financial well-being of the state’s biggest private employer — Delta employs 25,000 people in the metro area — and possibly the airline choices available to Atlantans in the years ahead.

The Federal Aviation Administration has raised questions about possible anti-competitive aspects of the contract. Those provisions permit Delta to continue to essentially lock up most gates at Hartsfield-Jackson, which could in the future freeze out possible competitors. Delta and the city argue that the lease will not hinder competition.

The lease battle is peopled by a cast of oversized personalities.

There is Delta CEO Richard Anderson, still trying to maneuver through Atlanta politics a year after he orchestrated the merger of Delta and Northwest Airlines.

There is outgoing Atlanta Mayor Franklin, who has said she wants to make sure the economic engine of the region continues to run smoothly as she leaves office after eight years.

And there is DeCosta, Hartsfield-Jackson’s 11-year general manager, a political survivor on less-than-friendly terms with Anderson. DeCosta is a career administrator who has often said he has to concentrate on the airport’s long-term well-being, not just the wishes of individual companies.

“This lease will determine our investment in our future,” DeCosta told the council Transportation Committee. It will affect everything from the airport’s ability to serve passengers and airlines to how it can respond to economic conditions, he said.

He also has warned that the agreement could limit airline competition.

“There is some risk that you will not be able to have the kind of competition, if the economy comes roaring back,” DeCosta said. If that happened, he said, there might not be enough “common-use” gates open to all carriers.

Costs and controls

Under the proposed lease, the cost Delta pays per passenger to the airport would initially remain about the same. But eventually it would pay the airport about $30 million more a year in gate fees, landing fees and other operational costs for the new international terminal. That would increase its cost of doing business, which would eventually be passed on to passengers. It now pays the airport $120 million annually; the figure would jump to about $150 million.

Keeping its costs per passenger at Hartsfield-Jackson the same for now — about $5 per passenger at the beginning of the proposed lease — helps the carrier keep its operating costs lower than at many other major airports, a key factor in the cutthroat world of airlines, where many are struggling just to stay afloat. Delta recently reported a loss of $161 million for the quarter.

The lease would also permit the airline to tightly control the majority of gates at the airport, probably making them off limits to other carriers that might want to enter the market.

The airport would be able to reclaim gates from Delta only if the airline sees its capacity decrease by about 20 percent, based on current use.

Another potential issue is the continuation of a provision that requires the airport to get Delta’s approval for major capital projects.

Hypothetically, if the airport wanted to build an expansion benefitting another airline that would compete against Delta, Delta could block the project.

Noting that the provision is in the existing lease, Delta’s Anderson said it “has not adversely impacted competition” at the airport.

FAA funds, terminal

DeCosta, meanwhile, in a rare parting with Franklin, has waved a caution flag, bringing the FAA into the fray. DeCosta’s move resulted in a memo from the FAA questioning parts of the lease, sending Delta and city officials scurrying.

The airport chief also has pointed out to the council Transportation Committee some of the potential risks related to the FAA’s concerns.

City chief operating officer Greg Giornelli called the FAA memo a “red herring,” and Anderson said the FAA has approved the same sorts of provisions at other airports.

“We think the FAA, when they sit down and understand all this, they’re going to be fine,” Giornelli said.

Anderson called the FAA letter critiquing the lease “a bit unusual,” saying normally a lease agreement is not filed with the FAA before it is finalized.

DeCosta said he submitted the draft lease to the FAA to get assurances on federal grant requirements.

The airport could lose millions in federal grants if an airline tried to gain access to Hartsfield-Jackson and the airport denied it unfairly.

If the lease affects the airport’s federal funding, it may fall onto the next mayoral administration’s list of legal issues.

The agreement says if the FAA withholds funding, the city can petition federal court to change the agreement.

The lease debate also is tangled up with the new Maynard H. Jackson Jr. International Terminal that is under construction, but badly in need of $800 million in bond money to open in three years as planned.

The much-delayed terminal has become a thorn in the side of DeCosta, who views it as part of his legacy.

Not long after Anderson took the Delta reins, Delta wrote to New York-based bond issuers saying the carrier could not support the project unless the price tag was slashed.

That move infuriated DeCosta, who was forced to eventually trim nearly $400 million from the project to get Delta on board.

Delta vice president John Boatright said the carrier will not back the bonds without a new lease agreement.

‘Not perfect’; needed

Franklin, while saying she is “100 percent” behind the contract, has acknowledged the deal itself is “not perfect.” The city is in a difficult negotiating position, serving as landlord amid the worst economic downturn in recent memory with a looming deadline to get a lease finalized with a tenant it cannot do without.

Anderson last week emphasized Delta’s history — its headquarters moved here in 1941 — with the airport and the city. Today, Delta accounts for more than 75 percent of the passengers moving through Hartsfield-Jackson. It is difficult to think of Atlanta, he said, without the name Delta attached.

Still, the CEO also reminded reporters and editors meeting with him and Franklin Friday that Delta has cut better deals at other airports.

Times have changed significantly since the last time the Atlanta airport and Delta negotiated a lease. That was in 1977, before the airline industry was deregulated in 1978.

While a number of large airports still have leases with carriers that are 20 to 30 years long, others are signing leases as short as three to five years, which gives them more flexibility to adjust to changes in the volatile industry.

Some members of the Transportation Committee have already suggested changes in the proposed lease. Councilman C.T. Martin has suggested a shorter lease term, perhaps five years.

Franklin said the proposed seven-year lease extension negotiated by her office continues a successful model.

The “philosophy is simple,” according to a city briefing on the deal: “It’s worked for 30 years, it will work for seven more.”