July 17, 2008

Airport All Set to Grow

By Tony Bizjak, The Sacramento Bee, Calif.

Jul. 17--This summer is not, by anyone's estimate, an ideal time to launch a major airport expansion.

Rocked by spiraling fuel costs, airlines are raising fares, canceling flights and even charging for luggage. So some airports are rethinking growth plans. And aviation experts say they expect more turbulence for a troubled industry.

Amid the turmoil, Sacramento International Airport next week will begin a long-planned $1.27 billion airport remake. And, while airport officials acknowledge the uncertainty of the moment, they remain confident they're making the right move.

"We are pretty comfortable with where we are at," airport director Hardy Acree said this week.

Airlines, including Southwest and United, complain the cost is too high and the timing is bad. But Acree and his boss, the Sacramento County Board of Supervisors, counter it's bad business to delay.

The industry will turn around at some point, Acree said, and Sacramento already has outgrown its existing airport.

"This (expansion) is not something we decided this year," Acree said.

"We've run out of capacity. Even with the downturn, the county must take a long-term perspective."

Acree said his agency is, however, looking for ways to nip and tuck the expansion budget in the coming months.

The makeover starts quietly next week: First up is construction of a new overnight jet parking area.

By mid-August, airport visitors will be winding through a real construction zone.

That's when the Terminal B1 hourly parking lot closes and the airport hotel is demolished.

In their place will come a four-story, glass and steel central terminal with a double-deck roadway and hotel tower. It's scheduled to replace Terminal B in 2011. Terminal B will be torn down after the new terminal opens.

The project includes a separate gate concourse building connected to the new central terminal by a people-mover tram.

Nationally, a number of airports are going forward with major projects with the understanding that expansions take years to put into place.

"Airports have to build facilities with a lot of lead time, and build them before the demand is entirely there," said financial analyst Jesse Ortega of Fitch Ratings in San Francisco, which analyzes airport bonds.

But others are postponing projects, said Sean Broderick of the American Association of Airport Executives.

"This is uncharted territory," Broderick said. "This is worse than after 9/11."

Every airport's situation is different, Broderick said. Each has to decide its own path.

Officials in San Jose recently launched a $1.3 billion modernization project but are holding off on a follow-up $400,000 expansion until passenger numbers hit a certain level.

"With the industry topsy-turvy, it looks like it will probably have to be deferred for who knows how long," San Jose spokesman David Vossbrink said.

The Oakland airport, which has been hit especially hard by airline pullouts, has shelved a $500 million terminal construction plan.

"Right now, we want to focus on keeping our current operation healthy," spokeswoman Rosemary Barnes said.

Los Angeles International Airport and San Francisco International, however, are moving forward with significant expansions.

San Francisco is spending $380 million to reopen its long-shuttered original international terminal for new domestic flights.

"We're being careful about watching the market, but we're going to need that terminal," San Francisco airport deputy director Kandace Bender said.

While San Francisco's immediate future appears unusually bullish, Sacramento and most airports are likely to see revenues pinched this year by airline cutbacks.

Although Sacramento County oversees the airport, the airport budget is separate from the county's general fund. The $1.27 billion expansion will be paid for entirely by revenues at the airport. Bonds sold for the expansion are backed solely by airport assets, officials say.

Sacramento airport director Acree said funding for the expansion remains solid, despite the downturn.

The airport recently increased parking rates and airline fees. It's also hoping for federal approval to increase passenger surcharges from $4.50 to $6 per ticket.

As construction begins, most of the $1.27 billion bill is covered by guaranteed contracts, Acree said.

Nevertheless, Acree acknowledged unforeseen construction issues at some point could cause airport officials to spend more.

"There are no guarantees, but contract structures go a long way to minimize that happening," he said.

Meantime, local officials say they and their contractors are spending the next 10 months doing "value engineering" that could lead to lower costs.

Airport executives also say they could adjust the timing on when the final part of the terminal project -- a $150 million parking garage -- is built.

"It's not a plan that's set in concrete," Acree said. "It's still evolving."


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