Delta Air Lines, Atlanta eye 30-year pact for Hartsfield-Jackson airport
By Maria Saporta
Published in the Atlanta Business Chronicle on October 25, 2013
A new master plan is expected to be released in the first quarter of 2014 that likely will recommend the building of a sixth runway and extending the airport’s concourses with new gates east of the recently opened Maynard H. Jackson International Terminal.
At the same time, Delta would like to negotiate a new long-term lease at the airport in 2014, although the current seven-year lease was agreed to by the city of Atlanta in 2010.
Delta would like to see a lease of 25 to 30 years that would be tied to the multibillion-dollar investments that would be proposed in the master plan.
Anderson, in a meeting with Atlanta Business Chronicle’s editorial staff, said he would like to strike an agreement with the city of Atlanta while Mayor Kasim Reed is in office.
Reed is virtually guaranteed of being re-elected to a second four-year term in November.
“The airport is the key asset driving economic development,” Anderson said. “We need it now, with Kasim here, to make the plan for the next 30 years.”
Anderson mentioned all the options that are being considered — a sixth parallel runway that would be in between the fifth runway and the other runways; a new terminal development; developing one or two concourses going east of the International Terminal; as well as ways to use part of the former Ford Motor Co. auto plant property.
“The reason we have to do it now is that we have a great mayor,” Anderson said. “We need to make sure that in 20 years we are still the No. 1 airport in the world.”
Reed said he is receptive to working with Delta on a long-term plan and lease.
“I feel very good about the city’s relationship with Delta, and I feel that if they are going to make a major investment, I’m interested in a long-term lease with Delta as well,” Reed said.
“I don’t have a number. Seven years is too short for the kind of investment that we might have at Hartsfield-Jackson,” Reed continued. “I do know that I’m very comfortable with having a conversation with Delta about having a long-term lease. I couldn’t be happier with our relationship with Delta. It’s the right people to do a deal together, and it’s the right time.”
Despite the willingness of Anderson and Reed to work together, tough negotiations could be in store. The master planning process that is underway includes several stakeholders, including airport officials, economic development representatives and other airlines. Issues that will have to be decided are the projected timelines and cost-benefit analysis of each of the proposed projects — primarily the sixth runway and the extension of the concourses with new gates (which would be located on property that Delta currently uses for its cargo and tech operations).
Complicating the picture is the tight quarters of Hartsfield-Jackson. It is located on 5,000 acres compared with the Denver airport’s 40,000 acres, Dallas-Fort Worth’s 20,000 acres and Houston’s 10,000 acres.
Holden Shannon, Delta’s senior vice president of corporate strategy and real estate, said the city and the airlines have to be extremely careful how Hartsfield-Jackson’s property is used.
“Hartsfield-Jackson is an extremely productive airport, and it’s the largest in the world,” Shannon said. “We need to prioritize the limited number of acres that we have. The airfield is first.”
And Shannon said timing is everything.
“We never want to be too late with a runway,” he said. “And we don’t want to be too early.”
Duriya Farooqui, chief operating officer for the city of Atlanta who is working on the airport master plan and the lease negotiations with Delta, said it’s about keeping Hartsfield-Jackson competitive.
“Part of our competitive advantage is that we can keep our costs low and reach 80 percent of the U.S. population within two hours from Atlanta,” Farooqui said. “The fact is that we have been recognized as the most efficient airport in the world for eight years in a row.”
The master planning process will help clarify how to best use the airfield, plan for growth and continue to keep low costs per passenger. “We think the next generation technology could make a significant difference in the future in terms of spacing [between airplanes landing and taking off],” Farooqui said. “Also airlines are becoming more efficient with their gates.”
One issue not being considered in the master plan is a second airport — something both sides said has been studied and determined to not be a desired option.
Both Shannon and Farooqui said the master plan will help frame the conversation for a new Delta lease. “The master plan forms the foundation of the next agreement,” Shannon said. “Delta is going to be the most interested in the growth of Atlanta. No one is going to grow the airport more than the city and Delta together.”
But the length of a lease likely will be an issue. Delta said it used to have a 30-year lease with the city, and the most recent seven-year lease was just an extension of that 30-year lease. “The master planning exercise is going to really set the strategy for major investments in the future,” Farooqui said. “And to the degree to which we can project them, it is going to inform the length of a future lease agreement.”
The trend has been for airports to have shorter leases with airlines. Fort Lauderdale signed a new five-year lease in 2011; Philadelphia extended a four-year lease for two additional years in 2013; Miami signed a 15-year lease in 2002; and Minneapolis signed a 10-year lease in 2010.
The Federal Aviation Administration conducted an “Airport Cooperative Research Program” in 2010 to help advise the industry on airport/airline agreements. “Prior to deregulation of the airline industry in 1978, agreements were generally long term and were considered financial security for an airport operator’s revenue bond debt,” the report stated. “As a result, the agreements at many airports were for a term of 30 years, which made them coterminous with revenue bond debt …”
The report went on to say that the length of agreements “has shortened significantly with many agreements running for just five years …”
City and Delta officials, however, do see advantages to locking in a longer-term agreement.
“Clearly the city and the airport are in a long-term partnership with Delta Air Lines, and we want to build on that successful relationship in a way that’s in the best interest of the city, the passengers and the airlines that support our airport,” Farooqui said. “Anytime you do long-term capital planning, it’s important to make commitments over a horizon that those investments can be made.”
And the close relationship between Delta’s Anderson and Reed is undeniable.
Reed adorned the cover of the August 2013 issue of Delta’s Sky magazine.
And Anderson is the chair-elect of the Metro Atlanta Chamber, a role he will have during 2014 — which is expected to be a pivotal year for Delta’s negotiations with the city.
“There’s a strong level of trust between the city and Delta Air Lines,” Farooqui said. “And that is driven by the leadership of the mayor and Richard Anderson.”