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US Airways' cuts may shift airport debt burden
Travelers head toward ticket counters for some of US Airways' competitors
Joe Appel/Tribune-Review
Signatory airlines are US Airways, American, Continental, Delta, Northwest, United, Allegheny, Chautauqua, Mesa and PSA. British Airways also is a signatory carrier and continues to make minimum payments on the debt despite no longer flying to Pittsburgh International.
Ordinance airlines are Air Canada, AirTran, America West, ATA and USA 3000.
Source: Allegheny County Airport Authority
US Airways is among a group of carriers that are paying off the $640 million remaining on the debt incurred to build the Findlay airport. The annual payment on the debt is $62 million, and US Airways, as the airport's dominant carrier, pays the largest share by far -- $50 million.
But if US Airways follows through on its plan to reduce its Pittsburgh International hub to a so-called focus city operation, the Arlington, Va.-based carrier's annual contribution could be halved -- and the other airlines will be on the hook.
That could lead to a moment of truth.
"It will be interesting to see how other carriers value that market," said Joseph Pezzimenti, an analyst with Standard & Poor's, a Wall Street ratings agency.
The airlines that would have about $25 million in annual debt payments shifted onto them didn't return calls last week. County Chief Executive Dan Onorato has proposed an airport debt reduction plan, but it depends largely on the state Legislature's approving slot machine gambling and the Allegheny County Airport Authority getting a piece of that action.
The 12-year-old airport's debt isn't scheduled to be paid off until 2018.
US Airways and 10 other carriers are called signatory airlines. In a novel financing scheme to get the airport built, they agreed to pay for construction in return for long-term, reduced-cost leases and lower user fees. Nonsignatory carriers, called ordinance airlines, choose to operate on a month-to-month basis and have more expensive leases and higher user fees.
The active signatory airlines are US Airways, American, Continental, Delta, Northwest, United, Allegheny, Chautauqua, Mesa and PSA.
British Airways also is a signatory carrier and continues to make minimum payments despite no longer flying to Pittsburgh International. The only way a signatory airline can entirely escape debt payments is to go out of business.
The airlines' debt contributions are based mostly on the amount of airport space they use and their flight activity. As US Airways shrinks, the other airlines' shares automatically increase -- even if they don't add a single flight.
As airport authority Executive Director Kent George puts it, the signatory carriers are responsible for debt repayment. Not the authority. Not taxpayers.
US Airways offers about 379 daily flights, or nearly 80 percent of the flights at the airport. A focus city would have about half that many flights, or fewer. The airline's local employment of 7,100 people could be reduced by nearly two-thirds, to about 2,500.
If the airline survives at all, it intends to keep a local presence. What it won't keep is the $50 million debt payment it now makes.
"Pittsburgh is going to be a city that's going to have service to destinations where people in Pittsburgh fly," said US Airways spokesman David Castelveter. "The destinations we serve today out of Pittsburgh are mostly destinations flown by connecting (hub) passengers.
"As we get our costs down, we'll be able to serve those destinations at lower fares."
The seeds for US Airways' reducing its share of debt repayment were planted last year during its Chapter 11 bankruptcy reorganization. The airline canceled its leases on 50 gates at Pittsburgh International. It then signed long-term leases on 10 gates and is leasing the other 40 month to month.
If US Airways halves its Pittsburgh operations and leases about 25 gates, the carrier likely will generate about 50 percent less revenue for the airport authority, which operates Pittsburgh International for the county. That would mean the airline's share of the annual debt payment would be cut to about $25 million.
The 10 other signatory airlines would see their total $12 million annual share of debt repayment zoom to $37 million.
Part of the increase could be offset even if the Legislature doesn't approve slots legislation.
Onorato hopes to get up to $15 million a year in slots money to help pay off airport debt. But there's more to his plan. If the Federal Aviation Administration gives its OK, Onorato will use $195 million in passenger facility charges to reduce the debt. The money would come from the ticket fee paid by departing passengers. The fee is $3 and will be raised to $4.50 if the FAA approves.
The money would be collected over 14 years, giving the authority about $15 million a year for debt reduction.
"That," Pezzimenti said, "would definitely make Pittsburgh's debt burden more manageable with the lower (flight) levels."
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