Delta Air Lines will be able to maintain some of the lowest airport costs in the country in a tentative new lease with Hartsfield-Jackson International Airport, city council members said.
But the airport will gain some controls that give it a sense of security of Delta's continued presence in Atlanta, and the lease's shorter term means financial issues could be revisited in coming years.
The city has also agreed to "use reasonable efforts" to limit total costs for the 12-gate international terminal under construction to $1.358 billion, not including general and administrative costs. The cost had escalated by late last year to $1.6 billion, and Delta had asked the airport to cut $400 million from the budget.
Delta and the city said Monday they reached a tentative deal on the new lease, which now goes to the City Council and Delta's board for approval. It would replace a 30-year lease expiring next year.
"It was highly likely that Delta and Hartsfield were going to reach an agreement," said Standard & Poor's airline credit analyst Philip Baggaley. "The only question was when and at what cost."
Delta's costs at Hartsfield-Jackson amount to roughly $5 per passenger boarding planes, according to a memo early this year. That is well below the average at similar airports around the country, according to industry observers.
City councilman C.T. Martin said he has been told Atlanta will still be one of the lowest-cost major airports in the country, and fellow councilman H. Lamar Willis called the new lease essentially "an extension of the current plan" in terms of fees.
"Costs are fairly consistent in that regard," Willis said. "While that is from a financial standpoint not where the city would like to be, it's not a long-term lease." The proposed deal runs through 2017.
"It left landing fees at a reasonable enough rate for a short-enough period of time to allow Delta to recover from this economic crisis," and to allow the airport to continue its progress on the international terminal under construction, Willis said.
Among the controls the airport gains is that the new lease loosens Delta's control of facilities under certain conditions. For instance, the city could allow a different airline to use Delta gates under certain provisions, and it may reclaim gates if Delta does not meet usage minimums.
That could open the door to a new competitor if Delta significantly cuts back flights.
The agreement includes language saying Delta supports the sale of nearly $1.4 billion in bonds to refinance airport debt and for funding to complete the international terminal.
The deal also includes language stating that Delta agrees to maintain its headquarters in metro Atlanta, though it does not prevent Delta from moving jobs, facilities or operations from here. The city's only remedy for breach of the headquarters covenant is that Delta would forfeit its share of concession credits. Delta and the city agreed to share revenues from concessions in the airport atrium area, and share debt and costs for atrium space as well.
Delta never publicly threatened to move its headquarters from Atlanta during its merger Northwest Airlines, which was based near Minneapolis..
"Of all the airports out there, it's hard to imagine Atlanta with anything other than Delta," airline consultant Darryl Jenkins said.
But, Willis said, "When Delta merges with a company based out of Minneapolis, you just don't know what the fallout could be, especially when so much of the leadership came from the Minneapolis entity."
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