Los Angeles ponders sale of troubled ONT

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Ontario officials

The value of an airport

As officials delve into the possibility of selling off the airport, the first question that needs to be answered is determining the airport's value.

Hahn asked LAWA officials to look into getting ONT appraised.

Steve Martin, LAWA's chief operating officer, said ONT could be worth anywhere between $250 million to $500 million.

In order for the sale to work, LAWA city officials need Congress to give them an exemption, said Hahn, who is among a handful of Democrats looking to replace long-time Rep. Jane Harman, D-El Segundo.

Then, selling ONT might be the solution to the city of L.A.'s budget woes, she said.

"I use to be harder about not selling our assets. But this one, why in the world wouldn't we sell this to the city of Ontario?" Hahn said.

"It seems like a great idea, we ought to look at that."

Initially, Thursday's meeting was an opportunity for LAWA officials to provide updates on the 10 inquiries it had received to possibly manage ONT, as well as to give an update on the negotiations between LAWA and city of Ontario.

But discussions turned to selling the airport after a series of questions from Hahn regarding ONT's current situation.

Martin warned Hahn that selling an airport would need approval from Federal Aviation Administration among other things.

"Selling of an airport is very complicated and time consuming. The city of Chicago has been trying to unleash Midway Airport for about four years," Martin said. "They have yet to close the deal."

Hahn said there is several factors that could help increase ONT's value.

One key asset to ONT is its ability to support future growth, said Mike Molina, LAWA's deputy executive director of External Affairs.

Other airports in the region: LAX, Burbank, and Long Beach are all going to reach capacity, he said.

Ontario is the only airport in the Los Angeles basin that doesn't have any known constraints, Molina said.

Traditionally, fees at LAX have been cheaper than ONT because the facility had not been renovated since 1984, said Los Angeles Councilman Bill Rosendahl, vice chairman of the Trade, Commerce & Tourism committee.

With modernization efforts under way at LAX things could soon change, he said. By 2014, LAWA officials predict airline executives will begin to see it is cheaper to fly out of ONT rather than LAX. The gap will continue to grow and in time could end up 30 percent higher than ONT's costs to do business, Martin said.

"It's not reversible. It will overtake Ontario, in terms of costs per passenger," he said. "How airlines make decisions, we'll see when we get there."

By then, ONT will be considered an "incentive" airport to major air carriers, further adding value to the airport, Rosendahl said.

Rosendahl said another answer to ONT's decline might be in the air service currently offered.

If nonstop, direct, discounted and frequent flights were added, then passenger traffic would return to the facility. Right now, a majority of flights are connections, he said.

"That's the bottom line. It has nothing to do with our management," he said. "The airlines look at their bottom line. They care about the bottom line, a good deal."

In the past, Ontario Councilman Alan Wapner has argued that they city can't wait until then because he fears the airport would be shut down.

The negotiations

Last year, at the invitation of Villaraigosa, representatives from LAWA participated in a series of meetings with the city of Ontario regarding the transfer of control of the airport.

LAWA has participated in three of those meetings. The most recent meeting occurred Jan. 12, Molina said, who described them as "productive."

"We've talked honestly about the issues related to the airport. Agreed and disagreed about certain areas to the management of the airport," he said.

At the Jan. 12 meeting, Ontario officials provided LAWA with a proposal on how they would operate ONT different. On Thursday, LAWA officials sent their response to the proposal, Molina said.

"We feel that there are still several details that need to be discussed and worked out before we take it to the next level," he said. "On the surface, we're in disagreement or in opposition to the proposal, as is."

Molina said LAWA officials have outlined a number of areas where the two agencies can continue to negotiate.

"That's what we really want to do, continue the discussions," he said.

Under Ontario's proposal, a regional airport authority would be created, and ONT would be placed under the direction of the authority, Molina said.

Ontario's proposal also suggests that the management of the authority go to a third party operator, he said.

This proposal is consistent with legislation that was recently proposed by an Inland Empire politician, Molina said.

Late last month, Senate GOP leader Bob Dutton, R-Rancho Cucamonga introduced a bill that would create a regional airport authority as well as transfer control of ONT from the city of Los Angeles to a regional airport authority.

The authority would reduce ONT's $67 million annual operating budget by streamlining operations and eliminating an $8.7 million administrative fee, said.

"A move that the city attorney believes is not legal," Molina said.

The creation of the authority can happen through legislation but it's the transfer of a city airport to an authority that has Molina questioning the legality of the bill.

"It's not a legal option for the state of California to do - to take our asset and transfer it into an authority, outside of eminent domain," he said.

For Hahn, selling the airport could be of more value to the city and LAWA. The proposal from Ontario, or the bill from Dutton does not provide their agencies any financial gains.

Molina said when the legislation was introduced, LAWA officials were not aware of it.

Since then, Molina said airport officials are having an "effective dialogue" with Dutton's office.

As a courtesy, Rosendahl said Wapner called him the day before the legislation was introduced.

"The reality is that Ontario feels that the airport is underutilized and has been, over the last 18 months, shown a dramatic drop in take offs and landings," he said.

ONT's operating structure

When the two terminals at ONT were built in the late 1990s, there was a lease agreement created with the airlines that would end in 2024, Martin said.

Costs at the airport are fixed, if traffic goes down then the average costs to the airlines goes up, he said.

In the industry, the agreement is referred to as a residual deal, which is when airlines lease the terminals and pay the bills, Martin said.

"The airlines had a chance to walk away from that deal about a year and half ago, after the decline, and they did not do that," Martin said.

The consensus from the airlines, Martin said, has been that they prefer the arrangement of the long-term deal even though their costs are high in the short-term.

But ONT is not alone, medium-hub airports have seen traffic decline, most notable situations similar to ONT are at Oakland International Airport and San Jose International Airport.

It's not clear yet whether which one of three factors is causing the situation at ONT, Molina said.