Mayor: Atlanta and Delta strike tentative airport lease deal

By J. Scott Trubey and Maria Saporta
Monday, October 5, 2009, 5:02pm EDT

Atlanta city officials confirmed Monday they have reached an agreement in principle on a new master lease that would keep the world’s largest airline from moving capacity out of the world’s busiest airport.

The deal, if approved by the air carrier and Atlanta City Council, would ensure Delta Air Lines Inc. keeps its fortress hub intact at Hartsfield-Jackson Atlanta International Airport through at least September 2017. A new lease also is a boost for the massive International Terminal construction project, which has been threatened by the brouhaha between Delta and the city.

It could also open the door for other carriers to gain a toehold in Atlanta.

“This is a big deal,” Mayor Shirley Franklin said in an interview with Atlanta Business Chronicle. “It leaves options for [airlines that want] to come to Atlanta, if a new airline wants to come in. But, it also recognizes the strong partnership that we have with our existing airlines.”

City Council members Clair Muller and C.T. Martin entered legislation into record during the council’s Monday meeting. It will be referred to the council’s transportation committee for consideration next week.

The new deal, which covers gates and other property used by Delta, cements the airline’s headquarters and main hub in Atlanta, Franklin said. The last deal was signed in 1980.

City officials expect to sign deals with other carriers at Hartsfield-Jackson in coming months.

“Delta is pleased to have reached an agreement with the City of Atlanta on a lease extension at Hartsfield-Jackson that will maintain the airport’s position as the leading airport in the world and ensure the continued growth of air service in Atlanta,” Delta CEO Richard Anderson said in a statement. “Atlanta and Delta are successful because we have worked hand-in-hand for nearly 70 years to distinguish our hometown airport as one known for its convenience, efficiency and competitive costs.”

The signing of a new master lease would bring to an end a contentious 13 months between Delta (NYSE: DAL) and the City of Atlanta.

The lease agreement has been the centerpiece of contention between Delta and the city, and has endangered construction of the $1.3 billion Maynard Holbrook Jackson International Terminal.

Sources familiar with the lease talks have said Delta wanted to complete a new lease agreement before Franklin leaves office Dec. 31. The current 30-year master lease expires in September 2010.

Delta officials have said the airline wants a new lease completed to ensure its operating costs at Hartsfield-Jackson remain competitive before making substantial commitments in capital for future airport projects.

“My priority was to get it done so we have continuity at the airport,” Franklin said. “The lease would have expired September 2010. The extension is good for seven years from 2010.”

Hartsfield-Jackson serves about 90 million passengers each year and more than 56,000 people are employed through jobs directly connected to the airport. Hartsfield-Jackson has an estimated annual economic impact of $23.5 billion.

In January it was revealed Delta tried to scuttle a bond issuance for the International Terminal, telling bond underwriter JPMorgan Chase & Co. in a September letter that the airport’s vision of future projects was too grand in scale and didn’t include a sixth runway that Hartsfield-Jackson carriers want.

After agreeing to the $1.63 billion price tag of the terminal for more than a year, Delta requested a $400 million cut in the project’s budget and threatened to pull significant connecting flight capacity out of Atlanta without a new lease agreement and changes to future building projects.

Airport officials agreed to cost cuts and construction on the terminal continued under a gentleman’s agreement to forge ahead.

“Delta is willing to commit to the headquarters and back the bonds,” Franklin said. “They are incentivized to fly out of Atlanta.”

In June, the city made its first steps to re-enter the bond market for $800 million in financing and to refinance $590 million in existing general revenue bonds at a better interest rate.

Delta neither backed nor opposed the city’s efforts to sell new bonds. Last week, airport officials said they expect to go to the bond market in mid-November for financing to finish its international terminal.

Airport spokesman John Kennedy declined comment.

Under the tentative deal, the master lease would permit Delta and the other airlines to have greater say in future building projects, but in return airport gates will convert from “exclusive-use” gates to so-called “preferential-use” gates, allowing the airport to reallocate docking points if underused by existing airlines.

“It’s an opportunity to accommodate other airlines on gates that are being underutilized,” said Greg Giornelli, the city’s chief operating officer.

The change in gate designation opens the door, if only slightly, for other airlines to enter the Atlanta market.

That could be an opportunity for Southwest Airlines Inc., or another major operator without a base in Atlanta, to come to the Big Peach, or permit an existing player to potentially expand their marketshare.