Tailspin

Lambert's billion-dollar expansion hangs on a wing and a prayer: The numbers no longer add up

Less than a month after American bought TWA in April 2001, Unison-Maximus predicted that airport net revenues would be enough to cover the debt service, plus 25 percent, if American shut down the St. Louis hub. But just barely, considering the airport was issuing $435 million in bonds that would increase annual debt service by more than $17 million. Drops in PFC revenue could force the airport to borrow additional money that would result in higher landing fees once the runway opened, the consultant warned. Passenger forecasts were almost identical to predictions a year earlier, with the number of passengers bottoming out at 12.4 million in fiscal year 2002 without a hub and dropping slightly to 15 million if a hub remained. The actual total that fiscal year was 12.6 million.

By December of last year, the picture, at least through Unison-Maximus' crystal ball, was brighter, despite American's bleak balance sheets and slumping air travel. Rather than consider a complete shutdown of American's St. Louis hub, Unison-Maximus changed the worst-case scenario to a 20 percent reduction in American flights and stayed with the more-optimistic estimate in a subsequent report published in February. That report estimated a 20-percent reduction would result in 11.8 million enplanements in fiscal year 2003 as opposed to its most-likely forecast of 12.6 million.

Drake says his company last year changed the worst-case scenario from a hub shutdown to a 20 percent reduction in flights because American had already cut daily flights by more than 100 since its Lambert operations peaked in the summer of 2001. In addition, Drake says the airport talked to airline executives shortly before the cuts were announced: They were given no indication that such a severe reduction was coming. As for cost-cutting goals announced by American before Unison-Maximus released its most recent study, Drake says his firm believed that the goals would be achieved through wage concessions by American's unions, increased efficiencies in maintenance and streamlined flight schedules short of steep reductions.

"I want to make it clear that the $4 billion [in cuts] did not really focus on airport operations, nor was the airport caught asleep, so to speak, because the airport had been in regular dialogue with American Airlines," Drake says. "A week before the announcement, airport management had been in American Airlines' offices during that conversation; American Airlines did not express an intent to reduce services to the level that they did."

Unison-Maximus predicted three years ago that the airport would collect $66 million in PFCs during fiscal year 2002, nearly $26 million more than actual revenue. Fewer passengers mean less money from parking and other concessions such as restaurants and car-rental agencies that do business at the airport. In fiscal year 2002, Unison-Maximus predicted concession revenue would be $41.25 million; actual collections were $34.24 million.

In its most-likely scenario released in February, which Unison-Maximus called "conservative," passenger counts would climb moderately through 2012, when Lambert would see more than 15 million enplanements, approaching the all-time high mark of 15.3 million recorded in 2000. Ever the optimist, Griggs last month told the St. Louis Business Journal that he expects to replace 100 of the lost American flights by next summer and completely make up for cutbacks by the time the new runway opens. Federal Aviation Administration forecasts are also optimistic, with the most recent predictions showing Lambert enplanements reaching 13 million in 2006 and rising to 19.8 million in 2020.

Boyd, the Colorado aviation consultant, says FAA projections aren't worth the paper they're printed on. "We do it bottom up," says Boyd, whose predictions are much darker. "We look at St. Louis. What's American Airlines going to do? What reaction might Southwest Airlines have? What we see is most of the connecting traffic at the airport is going to evaporate."

Enplanements, Boyd says, are likely to drop between 38 percent and 54 percent from 2000 to 2004, when he says Lambert enplanements will most likely be at 8.5 million. Boyd doesn't predict past 2008, when he calculates that Lambert will have about 8.6 million enplanements. He sees no chance of the airport topping 15 million enplanements within a decade, as Unison-Maximus predicted in February, nor will another airline step in to take American's place as a dominant hub carrier at Lambert. In a written bulletin released August 22, Boyd wrote that a few low-cost carriers might be interested in St. Louis, but that's a "very distant" possibility that amounts to "raw, uncut speculation."

Boyd has often been more accurate than either the FAA or consultants hired by airports. For example, Boyd's 1992 prediction of fewer than 700 million U.S. enplanements in 2000 was much closer to the actual mark of 709.2 million than the FAA's forecast of 1 billion. Boyd also correctly predicted hub shutdowns at Raleigh-Durham, North Carolina; San Jose, California; and Nashville, Tennessee, airports.

Despite Griggs' statements to the Business Journal, Drake says preliminary revised forecasts are more in line with Boyd's predictions than with a scenario in which the airport completely recovers from American's cutbacks. In 2008, Drake foresees 8.5 million enplanements. "I want to caution you: The forecast is not completed as of yet," Drake says. "Even at the lower levels, we're confident in all years that we meet the requirements of the bond documents and we can meet the debt-service obligations."

Cash flow is another matter. Between lower-than-expected PFC revenue and reduced FAA grants based on passenger counts, the airport figures it will be $100 million short in paying construction bills on an ongoing basis. Airlines, which are supposed to pay for about one-third of the project, can't be forced to pony up through landing fees and rents until planes start landing on the new runway. "Most of the money that's been spent has been bond funds, which the airport has the obligation to repay, but only has the ability to repay when the project has been completed," Drake affirms.

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