Tailspin

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

The airport could borrow money to close the $100 million gap but would have to pay a premium in interest because it would be a short-term loan that would be paid off soon after the runway opens and the airport can collect from airlines. "It's just not the best way to do business," Drake says.

Even without new runway costs, landing fees have skyrocketed past projections made by Unison-Maximus.

Landing fees are determined annually based on traffic projections from airlines. After receiving projections, the airport calculates how much it must charge airlines to make ends meet.

Unison-Maximus in 2000 predicted airlines in fiscal year 2003 would pay $1.79 for every 1,000 pounds of an airplane's weight and $2.70 when the runway opened. The actual figure in fiscal year 2003, when aircraft weight totaled 22.2 billion pounds, was $2.47.

All told, airlines in fiscal year 2002 paid $4.94 per enplaned passenger to do business at Lambert, which collected nearly $70 million from airlines that year. The per-passenger cost now is $6.09, which is on the low end compared with other large hubs such as Pittsburgh International, which charges $10.27, and Dulles International and Ronald Reagan Washington National airports in Washington, D.C., which charge approximately $13 and $15, respectively. Once the new runway opened and airlines started paying for it, Unison-Maximus three years ago predicted, the per-passenger cost would be $5.88. More recently, the consultant in February set the cost at $8 when the new runway opens. Ever the optimist, Griggs told the Business Journal last month that he wants to keep the per-passenger cost "somewhere around $8" when the new runway opens, even with American's cutbacks.

That's not likely, according to Peter Stettler, a director in the airports rating group of FitchRatings's public finance department, who believes the per-passenger cost could rise as high as $15. "That would get them a little ahead of the pack, but doesn't by any stretch of the imagination really get them into an uncompetitive situation," Stettler says. "It still seems, based on the forecasts they've given us, that their costs stay reasonably in line with the industry."

The picture will likely clear up after 2005, when terminal and gate leases for all airlines at Lambert expire. At that point, the airport will have to negotiate new deals sufficient to service debt for the new runway, plus cover operating costs.

In his interview with the Business Journal, Griggs acknowledged that PFC revenue will be $164 million less than originally projected between 2002 and 2007 -- which works out to fewer than 10 million enplanements per year -- if other airlines don't fill the gap created by American cutbacks. In the month after American announced reductions, other airlines added 14 flights, and Griggs predicted that airlines will add a total of 100 flights by next summer. When the new runway opens, Griggs told the Business Journal, he expects other airlines will have added enough flights to completely make up for reductions announced by American.

Boyd doesn't think so.

"There ain't nobody else that wants to put 200 flights a day in St. Louis," Boyd says. "In 2005 [when American's gate leases expire] you might have a couple of the world's longest bowling alleys: Concourses A and B." Boyd believes more cuts are coming from American. "I think when you're down to the levels they've announced, there's just almost no way this hub is going to remain a hub," he says. "American's going to keep that pretty close to its vest. How badly do they want to tick off [U.S. Representative Richard] Gephardt?"

Edward Jones' John Bachmann, who sits on American Airlines' board of directors, would presumably be in a position to know whether American can meet its cost-cutting goals without further reductions at Lambert. If so, he's not saying. "That, I can't talk about," he says. "You need to talk to the people at American. We have company spokesmen who have the details."

Bachmann refused to say whether he, as an investor, would buy airport bonds, saying Edward Jones' role in crafting airport-bond issues prohibited him from answering without creating a conflict of interest. But Bachmann is still bullish on the new runway. As far as he's concerned, now is the perfect time for construction bills to come due. Air travel will increase in the long term, he predicts, and that bodes well for Lambert.

"The airline industry is an incredibly cyclical industry," he says. "I think that's when you want them [bills] to come due, when the cycle's swinging up. The economy's improving. What I'm saying is, when you take the static out and take a look at this on a moving average, the demand is moving back up rapidly. That's what's going to determine the payment of the bonds."

Historically, Bachmann is right. Enplanements at Lambert increased from less than a million in 1961 to an all-time high of 15.3 million in 2000, an average annual increase of more than 7 percent. But there have been periods of little or no growth. For instance, enplanements at Lambert stayed relatively flat between 1985 and 1993. While the airline industry is healthier today than it was a year ago, that doesn't translate into higher passenger counts. According to the Air Transport Association, an airline industry group, July enplanements in the U.S. were down nearly 1 percent from a year ago, even though airline revenue was up by more than 8 percent. That's because airlines crammed more people into fewer planes, increasing efficiency and profits.

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