Mayor Villaraigosa and Los Angeles World Airports say the price for thestruggling facility must help cover the cost of improvements, but InlandEmpire officials counter that it has a negative market value.
Inland Empire officials seeking control of LA/Ontario International Airportare balking at an unprecedented demand by Los Angeles that they buy thestruggling operation for hundreds of millions of dollars.
Los Angeles Mayor Antonio Villaraigosa and the agency that operates Ontariohave insisted that the once-thriving aviation hub be sold at a price thathelps recover the cost of improvements made over the years. Their studiesestimate Ontario’s fair market value at $243 million to $605 million.
Inland Empire officials assert that the facility, 37 miles west of downtownLos Angeles, has a negative market value due to its severe decline duringthe recession and its uncertain future. They note that of the eight U.S.airports that have shifted ownership from one government agency to anotherover the last 20 years, not one involved a sale like that envisioned by LosAngeles.
The officials counter that the price estimates are unrealistic. They saythat Ontario – once the linchpin in a plan to more evenly spread air trafficacross the busy Los Angeles region – has lost almost 40% of its passengers,noting that revenue is declining and its high costs for airlines have madeit difficult to restore service.
“There has never been a transfer of this type that has entailed the amountof compensation Los Angeles World Airports wants,” said Ontario CityCouncilman Alan D. Wapner, who has been leading the effort to acquire theairport. “My biggest concern is that they will give it to us after it hasfailed. A lot is at stake.”
The newly formed Ontario International Airport Authority and the OntarioCity Council met in closed sessions earlier this week to discuss theiroptions in the talks with Los Angeles, such as potential counteroffers andthe possibility of litigation.
Serious discussions over control of the airport began late last year afterthe Los Angeles City Council rejected an offer by Ontario officials, whichincluded making a $50-million payment and retiring the airport’s remainingdebt of about $70 million from the construction of two passenger terminals.
Inland Empire officials believe the airport can be a much more vibranteconomic driver for Riverside and San Bernardino counties. They contend thatLos Angeles officials – who also manage Los Angeles International Airportand one of the nation’s busiest general aviation centers in Van Nuys – havenot done enough to halt Ontario’s severe decline.
Passenger volumes have plummeted from 7.2 million in 2007 to 4.2 millionlast year. The latest projections indicate that the passenger level couldfall below 4 million in 2013.
Los Angeles officials assert that the worst recession since World War II hasprompted carriers to reduce service and relocate flights to well-establishedmarkets at larger hubs, such as LAX. Efforts to cut costs and lure airlinesback to Ontario, they say, have not worked.
Representatives from Los Angeles and the Inland Empire have agreed not topublicly discuss the substance of the negotiations. Miguel Santana, LosAngeles’ chief administrator, is moderating the talks. He said thenegotiations are at a critical stage and that finding a middle groundacceptable to the parties is difficult.
“We are trying to find areas of commonality,” Santana said. “The city hasnot changed its view on a sale. The question is, what is the appropriatevalue. I still believe there is reason to be optimistic, but there are majorchallenges that need to be overcome by both sides.”
Based on various assumptions about the airport’s future revenue, expensesand projected growth, Leigh/Fisher management consultants established arange of values. Researchers also weighed the transaction terms of about 30airports worldwide, whose government operators sold long-term leases orshares to private interests.
In the U.S., Leigh/Fisher noted that private investors bid $2.52 billion in2008 to acquire a 99-year lease for Chicago’s Midway International Airport -the nation’s 29th-busiest airport. Though the deal collapsed, researcherssaid “Midway remains a relevant data point for valuing the sale of acommercial airport.”
According to the Federal Aviation Administration, Los Angeles can sell theairport to the Ontario authority, but the proceeds must be used for airportpurposes at LAX or Van Nuys and cannot go into the city’s general fund.
In stark contrast to Leigh/Fisher’s estimates, Inland Empire officialscontend that the airport has a negative value of $78 million to $104 milliondue to its decline and forecasts for a slow recovery.
They say it is disingenuous for Los Angeles to claim that Ontario must besold to recover the cost of improvements that were financed with the help ofairport revenue from Ontario, federal grants and passenger fees assessed forconstruction projects. About $506 million has been invested, officials say.
Oliver Wyman, the consulting firm hired by the Ontario airport authority,states that the facility has no real value because it operates on abreak-even basis and has no surplus revenue. Passenger volumes are decliningand the costs for airlines have been among the highest in the region, animpediment for restoring air service, researchers said.
The consulting firm notes that like the eight other transfers of airportsamong government agencies, the city of Ontario shifted ownership to LosAngeles World Airports in 1985 without selling it in the traditional senseas Los Angeles officials claim.
To complete the transfer, the agency paid $58,329 in costs and demonstratedthat it had satisfied its financial obligations under a 1967 joint powersagreement to operate the airport for the city of Ontario. That amounted to$6 million to $7 million in debt payments and reimbursements to the city fora land purchase.
“LAWA’s insistence on a high transfer price for Ontario despite the nocharge basis of the original transfer from Ontario to Los Angeles appears toviolate the expectation of fair dealing between the parties,” Wyman’s reportstated.