By Maria Saporta
Published in the Atlanta Business Chronicle on July 17, 2015
When Atlanta Mayor Kasim Reed and Delta Air Lines CEO Richard Anderson shared the stage July 13 at the Rotary Club of Atlanta, their interaction would best be described as a love fest.
But there were many plots and subplots at play during their performance.
City-owned Hartsfield-Jackson Atlanta International Airport has been working on an ambitious 20-year master plan that would cost at least $10 billion to implement.
Among the features in that master plan are adding a sixth runway, extending the airport concourses to the east beyond the Maynard H. Jackson International Terminal (also known as Concourse F) and relocating and expanding the cargo facilities from the north part of the airport property to an area south of the concourses between the runways.
Delta Air Lines Inc., as the dominant airline serving Hartsfield-Jackson — carrying 78 percent of the traffic (82 percent including Delta-owned Express Jet) — would be responsible for paying for much of that investment.
So that’s why Delta and Hartsfield-Jackson are in the middle of renegotiating a master lease. The current seven-year lease will end in 2017, but now both sides are considering a 20-year lease with a 10-year option to renew. The length of that lease is substantially longer than most leases being negotiated today.
But both Delta and airport officials said the lease is designed to parallel the 20-year airport master plan with the anticipated investments.
And ultimately, the long-term lease would seal the already close bond that exists between Delta and Atlanta.
Mayor Reed opened up his comments at Rotary by reminding the crowd how close Atlanta came to losing Delta’s headquarters to Minneapolis during that fragile period when the company was emerging from bankruptcy and merging with Northwest Airlines.
“Think about Atlanta without Delta Air Lines being headquartered here. We are all beneficiaries of that,” said Reed, who credited Anderson and his wife, Sue, for that decision. “Does anyone in this room believe we would have won the Olympics without Delta Air Lines? It’s one of those stories that is weaving through the tapestry of this city. That’s why I think this partnership is so important and consequential.”
It also is no accident that the lease signed in 2010 included a provision that Delta had to keep its corporate headquarters in Atlanta. And that same provision is one of the key tenets that has been agreed to during the current negotiations — a process that airport officials hope will be completed by the end of the year so that the 20-year clock would start on July 1, 2016.
During the last legislative session of the Georgia General Assembly, a bill was passed to reinstitute an airline fuel surcharge. It was widely viewed that the tax was passed as a way to punish Delta and CEO Anderson for being outspoken against stricter immigration legislation, against the religious freedom bill that he viewed as potentially discriminating against gays, and for investing in Georgia’s transportation infrastructure — even if that included a tax increase.
The tax, which would not even go directly into the state coffers, did upset key Delta executives, and there was concern the airline could move its headquarters.
Reed acknowledged that there was a need to rebuild a relationship between Delta and the state, but he added that he is not concerned that Delta would move its Atlanta headquarters.
“I’m confident that Richard Anderson’s commitment to Atlanta is very strong,” Reed said. “Delta has not had a better partner than Atlanta.”
Delta officials have repeatedly said their home is in Atlanta. But if there were any doubts, the current lease and the proposed lease stipulate that Delta continues to be based in Atlanta.
In his comments at the Rotary Club, Anderson focused on the future — almost causing the mayor to choke when Anderson started talking about the development of future concourses.
“We need to build Concourses G, H, I and J,” Anderson said.
After laughing at Anderson’s candor, Reed told the Delta CEO that he was going to cause Clayton Commission Chairman Jeff Turner to have a heart attack.
The master plan, however, only envisions a Concourse G and H being built within the 20-year horizon. But it also contemplates the possibility of needing to expand eastward in future years.
Anderson praised Reed for leading the effort on the master plan and the lease negotiations — saying the mayor was looking ahead 20 to 25 years from now. He added that the total master plan likely would cost between $10 billion and $15 billion over the next 20 to 30 years when accounting for inflation.
“Those are investments we are prepared to make to remain No. 1 in the world,” Anderson said. “It is our responsibility to steward the next long-term agreement that keeps the airport No. 1 in the world. It’s a pleasure to work with the mayor. We have to capture the moment of his leadership.”
Because the love fest is so strong between Atlanta’s dominant hometown carrier and the world’s busiest airport, concerns are inevitable on several fronts. The most prevalent concern is whether Delta would try to keep out the competition in the way the new lease is structured — which gates would become available to possible new entrants to the market.
From a consumer standpoint, there repeatedly are questions about whether consumers will get the cheapest fares when one carrier dominates the market.
Miguel Southwell, general manager of Hartsfield-Jackson International Airport, said there are provisions in the new lease that will protect the city’s ability to add new carriers and allow existing smaller carriers to expand.
He also said it costs about the same to fly today as it did 20 years ago, so airline competition has worked on behalf of consumers.
And Southwell also defended the length of the proposed lease.
“It is in Atlanta’s best interest to commit Delta for as long as possible,” Southwell said. “They are the world’s largest carrier that is actually headquartered here. I believe it is is part of the city’s obligation to keep Delta here.”
One of the more technical provisions in the proposed “tenets” in the lease negotiations is the “Majority In Interest” provision. That would give the legacy carriers a greater voice in what capital improvements are being made at the airport.
“If an airline is going to back the bond debt of the growth of the airport, they should have a say,” Southwell said. “If we are going to build all of these improvements, we need a certain number of airlines to sign off on it. Most airlines don’t want to sign up for 20 years. But the legacy carriers typically want the guarantee.”
Southwell went on to say that Hartsfield-Jackson understands that “airlines want the cheapest rates possible,” and that it’s in Atlanta’s best interest to make sure that the airport is as competitive as possible. That will make sure that Delta and other airlines will want to continue to fly into Hartsfield-Jackson and help it maintain its international stature.