Tough time landing airport

Inland Empire officials seeking control of LA/Ontario International Airport are balking at an unprecedented demand by Los Angeles that they buy the struggling operation for hundreds of millions of dollars.

Los Angeles Mayor Antonio Villaraigosa and the agency that operates Ontario have insisted that the once-thriving aviation hub be sold at a price that helps recover the cost of improvements made over the years. Their studies estimate Ontario’s fair market value at $243 million to $605 million.

Inland Empire officials assert that the facility, 37 miles west of downtown Los Angeles, has a negative market value due to its severe decline during the recession and its uncertain future. They note that of the eight U.S. airports that have shifted ownership from one government agency to another over the last 20 years, not one involved a sale like that envisioned by Los Angeles.


The officials counter that the price estimates are unrealistic. They say that Ontario -- once the linchpin in a plan to more evenly spread air traffic across the busy Los Angeles region -- has lost almost 40% of its passengers, noting that revenue is declining and its high costs for airlines have made it difficult to restore service.

“There has never been a transfer of this type that has entailed the amount of compensation Los Angeles World Airports wants,” said Ontario City Councilman Alan D. Wapner, who has been leading the effort to acquire the airport. “My biggest concern is that they will give it to us after it has failed. A lot is at stake.”

The newly formed Ontario International Airport Authority and the Ontario City Council met in closed sessions earlier this week to discuss their options in the talks with Los Angeles, such as potential counteroffers and the possibility of litigation.

Serious discussions over control of the airport began late last year after the Los Angeles City Council rejected an offer by Ontario officials, which included making a $50-million payment and retiring the airport’s remaining debt of about $70 million from the construction of two passenger terminals.

Inland Empire officials believe the airport can be a much more vibrant economic driver for Riverside and San Bernardino counties. They contend that Los Angeles officials -- who also manage Los Angeles International Airport and one of the nation’s busiest general aviation centers in Van Nuys -- have not done enough to halt Ontario’s severe decline.

Passenger volumes have plummeted from 7.2 million in 2007 to 4.2 million last year. The latest projections indicate that the passenger level could fall below 4 million in 2013.

Los Angeles officials assert that the worst recession since World War II has prompted carriers to reduce service and relocate flights to well-established markets at larger hubs, such as LAX. Efforts to cut costs and lure airlines back to Ontario, they say, have not worked.

Representatives from Los Angeles and the Inland Empire have agreed not to publicly discuss the substance of the negotiations. Miguel Santana, Los Angeles’ chief administrator, is moderating the talks. He said the negotiations are at a critical stage and that finding a middle ground acceptable to the parties is difficult.

“We are trying to find areas of commonality,” Santana said. “The city has not changed its view on a sale. The question is, what is the appropriate value. I still believe there is reason to be optimistic, but there are major challenges that need to be overcome by both sides.”

Based on various assumptions about the airport’s future revenue, expenses and projected growth, Leigh/Fisher management consultants established a range of values. Researchers also weighed the transaction terms of about 30 airports worldwide, whose government operators sold long-term leases or shares to private interests.

In the U.S., Leigh/Fisher noted that private investors bid $2.52 billion in 2008 to acquire a 99-year lease for Chicago’s Midway International Airport -- the nation’s 29th-busiest airport. Though the deal collapsed, researchers said “Midway remains a relevant data point for valuing the sale of a commercial airport.”

According to the Federal Aviation Administration, Los Angeles can sell the airport to the Ontario authority, but the proceeds must be used for airport purposes at LAX or Van Nuys and cannot go into the city’s general fund.

In stark contrast to Leigh/Fisher’s estimates, Inland Empire officials contend that the airport has a negative value of $78 million to $104 million due to its decline and forecasts for a slow recovery.

They say it is disingenuous for Los Angeles to claim that Ontario must be sold to recover the cost of improvements that were financed with the help of airport revenue from Ontario, federal grants and passenger fees assessed for construction 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 a break-even basis and has no surplus revenue. Passenger volumes are declining and the costs for airlines have been among the highest in the region, an impediment for restoring air service, researchers said.

The consulting firm notes that like the eight other transfers of airports among government agencies, the city of Ontario shifted ownership to Los Angeles World Airports in 1985 without selling it in the traditional sense as Los Angeles officials claim.

To complete the transfer, the agency paid $58,329 in costs and demonstrated that it had satisfied its financial obligations under a 1967 joint powers agreement 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 for a land purchase.

“LAWA’s insistence on a high transfer price for Ontario despite the no charge basis of the original transfer from Ontario to Los Angeles appears to violate the expectation of fair dealing between the parties,” Wyman’s report stated.