Officials consider cost cuts and new fees for Van Nuys Airport

By Dan Weikel

May 5, 2009 7 AM PT

Years of red ink at the busiest general aviation airport in the world are prompting Los Angeles officials to consider cost-cutting measures and new fees for tenants at Van Nuys Airport, where mismanaged leases and landing fees have cost the airfield millions of dollars.

This is the first time that Los Angeles World Airports has moved to eliminate perennial deficits at the popular facility, home to a range of aviation businesses and more than 700 aircraft -- a mix of meticulously restored warplanes, humble propeller planes and luxurious corporate jets.

“There is no excuse for deficits at an airport that is for private use,” said Alan Rothenberg, president of the Board of Airport Commissioners. “Whether hobbyist or corporate jet owner, they should be paying us at least enough to break even.”

Los Angeles officials are looking into renewing landing fees and hitting tenants with a “debt recovery” charge to help close an annual budget deficit that could run as high as $9 million this year -- one of the largest gaps since the early 1990s.

Airport commissioners already have raised from 3 cents to 11 cents a fee on every gallon of aviation fuel delivered at the San Fernando Valley airport -- a charge that had not been increased since 1979.

Rothenberg said the board began scrutinizing Van Nuys after commissioners learned last year that budget deficits have persisted for decades. Records dating to 1992 show the gaps have ranged from $549,000 to $9.3 million a year.

Former and current airport officials blame the situation on poor management by past administrators and sweetheart deals for some tenants helped by City Council members. They note that major revenue-generating projects have been delayed, and Van Nuys has never been a priority at Los Angeles World Airports, which has been preoccupied with LAX and Ontario International Airport.

In the past, Van Nuys’ budgets have been balanced with revenue -- landing fees, terminal rent and concession earnings -- from Los Angeles International Airport. The practice has gone unopposed by airlines, which have tolerated the subsidy on the theory that Van Nuys’ low fees attract smaller planes that would otherwise clog busy LAX.

Airport officials say they now want to put Van Nuys on a more businesslike footing and to offset the current economic recession that has reduced flights and passengers across the airport system, including LAX and Ontario, where cost-cutting is underway.

In addition, Rothenberg said the belt tightening could benefit the multibillion-dollar effort to modernize LAX by increasing the amount of debt the airport can take on. If the Van Nuys deficit can be erased, he said, the airport could save enough revenue to pay off almost $100 million in bonds to finance LAX improvements.

Airport commissioners discussed the deficits and possible remedies on Monday when they met at Van Nuys Airport, where the prospect of raising fees and imposing new charges during a severe economic recession has become controversial.

More than a dozen tenants, from private pilots to large charter operators, warn that the approach could backfire by adding to the economic woes of companies that have lost 30% to 40% of their business during the downturn.

“We need to realize that we are in a recession and that more people are going to leave,” said Jim Hansen, owner of Western Jet Aviation, a maintenance facility. “They have their cost factors and the airport is running in the red. But we need to all work together to figure out how to help people survive here.”

Critics of the fuel fee increase, for example, say it could motivate pilots and aircraft owners to refuel at airports with lower prices, hence reducing business for Van Nuys suppliers and lowering revenue from the fee -- a projected $1.8 million a year.

There is an overall concern that new charges could drive aircraft away and contribute to a decline in flight activity that has been underway largely due to a long-term decline in general aviation nationally. From 1999 to 2008, landings and takeoffs at Van Nuys have dropped from almost 600,000 a year to about 387,000.

Tenants say they also oppose additional fees because they have been hit by retroactive rent increases going back to 1990 to make up for the airport agency’s failure to reevaluate leases and adjust rents as required every five years.

Audits by the city controller and outside consultants during the last 10 years show that Van Nuys did not raise rents from 1990 to 2003 and leased land for non-aviation purposes without the required approval of the Federal Aviation Administration. The controller concluded that the mismanagement resulted in the loss of at least $24.5 million.

Subsequent audits indicate that Van Nuys is better managing its leases today and bringing rents into line with market values, though more work needs to be done.

“It’s disgraceful,” Rothenberg said. “The airport failed to update its leases, and the tenants benefited from this neglect.”

To help reduce the red ink, Los Angeles World Airports is considering a major overhaul of a landing fee that was initiated in the early 1990s but was never seriously enforced. A 1999 audit by the KH Consulting Group said a landing fee similar to one at Teterboro Airport in New Jersey could raise almost $4 million a year.

Over the years, Van Nuys failed to earn landing fees on hundreds of thousands of flights. Airport officials said they collected about $46,000 during 2007 and 2008 from no more than four companies, including Clay Lacy Aviation and Skybird Aviation-Jet Charter.

A new KH Consulting audit released in December stated that the program is so poorly administered that it has likely created an inequitable situation for aircraft owners and charter companies.

“There will be understandable embarrassment in making a public admission of the problem,” auditors wrote. “This public admission is much preferred, however, to the continuation of the current situation in which some pay, some do not, and no one seems to know what the actual situation is.”

Gina Marie Lindsey, executive director of Los Angeles World Airports, said landing fees have been “a hassle” to administer because it is difficult to track private aircraft. Nevertheless, officials are reevaluating the program.

If approved, Lindsey contends the landing fee and other charges should not chase businesses and aircraft away as tenants contend. “We are not pricing ourselves out of the market,” she said. “Van Nuys will remain a very popular airport.”

Instead of new charges, tenants say the airport should reduce expenses and create economic incentives to attract business and keep existing tenants from closing their operations or relocating to cheaper airfields.

Robert Rodine, a financial consultant who co-chairs the aviation committee of the Valley Industry and Commerce Assn., contends that Van Nuys can cut its staff from 99 to 50, saving about $4 million a year. Comparable airports, he noted, operate with far fewer workers than Van Nuys.

Airport officials say they are considering alternative solutions, such as cutting costs, reducing staff and establishing a state-sanctioned “enterprise zone” at the airport. The program provides government assistance and tax breaks for businesses in economically depressed areas.

“No one is going to be Draconian,” Rothenberg said. “We have to be mindful of the impact of the actions we take, but we cannot sit back and do nothing in the face of a continuing deficit.”

dan.weikel@latimes.com

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Van Nuys Airport facts

Total aircraft: 712*

Propeller aircraft: 412

Jets: 176

Turboprops: 19

Military/government: 22

Helicopters: 60

Stored/inactive: 23

Takeoffs and landings: 386,706 in 2008.

Regional economic benefit: $1.3 billion**