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Kansas City, Mo., Approves Bond to Overhaul American Airlines Maintenance Base

Posted on: Friday, 29 July 2005, 00:00 CDT

Jul. 29--The Kansas City Council on Thursday approved the issuance of $32 million in revenue bonds that will allow work to begin on renovation of the American Airlines maintenance base.

The bonds are part of an arrangement that will provide nearly $41 million to begin upgrading the Kansas City-owned overhaul base, whose condition was largely neglected through the years due to the financial troubles of its tenants. Trans World Airlines operated the base for more than 40 years before being acquired by American in 2001.

The $32 million in bonds are expected to be sold next week. The debt service on the bonds will be paid through lease payments by American, a sales tax imposed on businesses at Kansas City International Airport, and the sale of tax credits issued by the Missouri Development Finance Board.

Renovations at the overhaul base are expected to include repairing the leaking roof and hangar doors, as well as making improvements in the utility plant and elevators.

John Hotard, a spokesman for American, said work on the base could begin as early as fall.

"Once the funds are made available, we'll start the work, and one of the first priorities will be the roof," he said.

American Airlines agreed to renew its lease of the facility's superhangar earlier this year for 25 years. Lease payments are $1 million annually for the first five years and eventually climb to $1.25 million.

Despite the new lease, American has had two big layoffs at the overhaul base since last December. Blaming soaring fuel costs that have mired American in steep losses until the latest quarter, American cut its employment at the overhaul base by approximately one-half to about 900 employees. The lease agreement calls for American to maintain an employment level of 700 at the facility in order to qualify for the incentives.

Mark VanLoh, the city's aviation director, said the facility renovations are necessary regardless of American's recent financial difficulties. VanLoh said the only way American can avoid future lease payments is if the company enters bankruptcy proceedings and a judge approves canceling the lease, or if the airline completely collapses.

Since September 2001, "we've had two major airlines enter bankruptcy, and they're still operating and haven't gone completely out of business," he said. "In the unlikely event of a liquidation, the airport would still have to continue to make the improvements to put it back out on the market."

In its most recent quarter, American's parent, AMR Corp., posted $58 million in profits on higher revenues despite record-high fuel costs and downward pressure on fares created by lower cost carriers like Southwest Airlines, the dominant carrier in Kansas City.

Southwest has been putting further pressure on American by generating political support for elimination of the Wright Amendment, an act that limits Southwest's service to and from its Love Field home in Dallas, down the road from American's Fort Worth headquarters. It currently can fly direct flights from there to only eight states.

Sen. Kit Bond of Missouri recently inserted a provision in a bill that would grant Missouri an exemption from the Wright Amendment and allow Southwest to fly nonstop to Kansas City and St. Louis from Dallas. Other states are also seeking exemptions, and some legislators are pushing for the repeal of the Wright Amendment.

American is fighting the repeal, saying Southwest can expand in the Dallas area by adding flights at Dallas-Fort Worth International Airport, where American is the dominant carrier. Southwest has contended that it only wants to be able to compete in all the markets that American and other carriers fly to from DFW, which ultimately would reward travelers through lower fares.

American has predicted that its financial condition would worsen with the repeal of the Wright Amendment and that it could lead to further downsizings if the industry faces another downturn.

"This has a direct impact ... on American Airlines and its ability to compete," an American spokesman said.

Airline consultant Mike Boyd said both airlines are exaggerating the effects an appeal of the Wright Amendment would have on their operations.

Boyd's firm, the Boyd Group, issued a report earlier this month that analyzed the debate and concluded that while Southwest would add some new cities out of Love Field in the absence of the Wright Amendment, that would not cause American to crumble at DFW.

"I applaud American trying to fight the repeal of the Wright Amendment; that's in their best interest," Boyd said. "But it will not kill American Airlines if it happens. Flying out of DFW is not the huge disadvantage they'd have you believe."

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Copyright (c) 2005, The Kansas City Star, Mo.

Distributed by Knight Ridder/Tribune Business News.

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AMR, LUV,

Source: The Kansas City Star (Kansas City, Missouri)

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