Orange County Transit Board Studies Swap for Airport : Bankruptcy: In exchange, agency would write off debts and buy recovery notes, internal memo says.

Orange County transportation officials are drafting a plan to assume ownership and control of John Wayne Airport in exchange for more than $460 million in financial incentives aimed at helping the county recover from bankruptcy.

The plan, if successful, would substantially improve the county’s financial position, reduce its debt obligations and possibly shave three years off the needed life of a proposed half-cent sales tax increase.

“It’s an idea whose time may have arrived,” said Supervisor William G. Steiner, a strong supporter of selling or transferring the airport. “It has many fewer obstacles than selling (the airport) to a private entity.”

In a confidential document obtained by The Times, the Orange County Transportation Authority would agree to write off $132 million the county owes the agency as a result of losses suffered by the county-run investment pool, purchase $84 million in county recovery notes aimed at repaying other pool participants, and assume $250 million in airport debt as part of the contemplated airport deal.

The document is in the form of a contract between the transportation authority and Orange County as a settlement of claims resulting from the bankruptcy. Aside from the county itself, the transportation authority was the largest single investor in the ill-fated pool, which lost $1.7 billion and forced the county into bankruptcy Dec. 6.

For the transportation authority, the addition of the airport would expand the agency and bring one of the county’s largest assets under its control.

Stan Oftelie, the chief executive of the transportation authority, said the proposal was a “very sketchy internal document” that was not yet completed or ready for public debate. Nonetheless, he said, the proposal is being seriously considered within his agency.

Oftelie said the county would have to reach a settlement with the other investors in the county’s collapsed investment pool before he would make a formal bid for the airport.

“We will work with the county on this, but we have to get past a settlement agreement before we can do anything at all,” Oftelie said. “But we are definitely exploring the idea.”

Paul Nussbaum, an adviser to Orange County Chief Executive Officer William J. Popejoy, said the proposal needs to be reviewed by county staff to determine whether it is a viable option. If it is, he said, Popejoy would recommend pursuing a deal with transportation authority.

Nussbaum, however, said he still believes there are many legal and financial obstacles that would have to be overcome before the airport could be transferred to another party.

“We won’t preclude any option,” Nussbaum said. “It’s just a question of the size of the obstacles in the way and when they can get resolved.”

He said the proposed deal would have to be resolved by June if it is going to assist the county in making good on the recovery notes, as county officials have pledged to do.

Among the obstacles to a sale or transfer of John Wayne Airport are federal laws prohibiting airport revenues being used for non-airport purposes, deed restrictions against property transfers, the refinancing of about $250 million in airport debt and the implications of a voter-mandated commercial airport at the El Toro Marine Corps Air Station.

Transferring the airport to the transportation authority--an autonomous public agency--could sidestep many of the obstacles that stand in the way of selling it to a private sector bidder, several county officials have said.