From Pittsburgh Business Times
http://www.bizjournals.com/pittsburgh/stories/2003/11/10/daily42.html?f=et74

Airport Authority: US Airways must decide by January
Christopher Davis
Among all of the uncertainty surrounding the future of US Airways' hub at Pittsburgh International Airport, one thing is certain from the Allegheny County Airport Authority's perspective.


"The deadline to accept or reject the Pittsburgh lease will not be extended," Airport Authority chairman Glenn Mahone told those gathered Wednesday night for the Allegheny Conference on Community Development's annual meeting.

After rejecting its leases at Pittsburgh International as part of its successful emergence from Chapter 11 bankruptcy protection in March, US Airways asked the county last month to allow it to operate under its current lease for another year. In return, it pledged to keep its hub there for the length of that term.

Previously, the airline had agreed to maintain its current number of flights until Labor Day 2004, in order to give some breathing room to negotiators working to reach a new lease agreement.

Airport Authority solicitor Jeffrey Letwin said the agency sent a letter to US Airways about a week ago, informing the airline that it would not grant its request for a one-year lease extension. He said the Airport Authority was encouraged by US Airways' request, but it wants to negotiate something more certain than just a short-term fix.

"We're interested in a long-term resolution that keeps US Airways here and hubbing here," Mr. Letwin said. "We want them recommitted to Pittsburgh."

David Castelveter, a spokesman for US Airways, said that's what the company wants, too.

"We regret that there continues to be confusion, even by the Airport Authority, about what the negotiations are about," Mr. Castelveter said. "We are not asking for a bailout or a subsidy of the airline. The issue is whether there is a way to maintain our Pittsburgh hub by making the airport more cost competitive in a rapidly changing industry."

The nation's seventh-largest airline initially set a Jan. 4 deadline for wrapping up the lease negotiations and threatened to reduce or eliminate its hub operations in Pittsburgh, as well as possibly move its Pittsburgh-based regional airline, MidAtlantic Airways, depending on the outcome.

Arlington, Va.-based US Airways, which operates its second-largest hub at Pittsburgh International, wants to see the airport's $673 million in outstanding debt slashed by $500 million.

US Airways accounts for the bulk of the airport's traffic, as well as the bulk of its debt obligation. The airline has 396 daily flights from Pittsburgh and employs 7,292 in Western Pennsylvania, according to its Web site.


If the airline's self-imposed Jan. 4 deadline passes with no new lease agreement, the airline would still be able to operate in Pittsburgh.

However, it would be required to pay the county Airport Authority essentially a 20 percent surcharge on top of its regular lease and landing fees.

Mr. Letwin said previously that the 20 percent premium is a standard charge that so-called nonsignatory airlines -- those not covered by the airport's residual operating agreement, such as newcomers America West, AirTran and ATA -- must pay on top of normal lease and landing fees. That premium would cost US Airways millions of dollars in additional fees for operating here.

US Airways' current lease, signed in 1988, had been set to run through 2018.

Mr. Castelveter said that as far as the lease discussions were concerned, US Airways was expecting to hear from negotiators appointed by Gov. Ed Rendell.

"We have been told that terms for a lease extension will be deferred to the governor's negotiating team," he said.

As bargaining leverage in the current new lease negotiations, Mr. Rendell, a Democrat, and local government officials tied the Pittsburgh hub to US Airways' profitable hub at Philadelphia International Airport. The governor offered a $264 million incentive and improvements package, in an effort to solidify US Airways' statewide presence.

Mr. Mahone told the more than 1,000 people gathered for the Allegheny Conference meeting at the Carnegie Music Hall in Oakland that the Airport Authority also is working to lure new low-fare carriers to Pittsburgh and finalize an arrangement to reduce the airport's debt by $25 million a year, for five years.

"US Airways asked the county last month to allow it to operate under its current lease for another year. In return, it pledged to keep its hub there for the length of that term. Airport Authority solicitor Jeffrey Letwin said the agency sent a letter to US Airways about a week ago, informing the airline that it would not grant its request for a one-year lease extension. "

Are they nuts? I've flown through pit a few times during the last couple of months (usually fly throught phl) and noticed it's not as busy as I remembered it when I flew through regularly in '99 and '00. What's the county got to lose by signing for another year? We're at the low point of the year as far as travel is concerned and most (or all?) of US's carribean flights go through phl don't they?

"possibly move its Pittsburgh-based regional airline, MidAtlantic Airways, depending on the outcome"

What the hell is Mid Atlantic Airways? Never heard of them. Are they like Chitaqua? Where do they fly?

The main reason that that the PIT terminals don't seem crowded is because non-passengers are no longer permitted past security. The lack of dollars from the non-flyers is killing many of the shops there.

Also, if they give a one year extension to US, the other carriers with long term contracts won't be very happy. Conceiveably, they would have the ability to sue the airport over this. Additionally, if PIT just give US a one year extension, then US would still control empty gates that PIT could use to entice other carriers.

Why the heck wouldn't Allegheny County extend the current lease for another year, that doesn't make any sense ... there's no way they're going to get more rent under a new lease than the current lease. On one hand I understand that they don't want to drag this out, but if it were me running the airport I'd be more than happy to let US keep paying it's current rent for another year knowing they are going to be paying a lot less once the lease is renegotiated (either because of lower rent or a lot less flights).

The main reason that PIT has so fewer people in the terminal is because US has replaced all mainline jets in the "A" concourse with RJ's. Additionally, there are many fewer flights in and out of PIT while US tries to strong arm Allegheny County. The lack of non-flying persons in the terminal is a lesser issue.

I did read that PIT can charge US 20% more on the lease after Jan 1st......don't think that they won't use this as leverage since the pendulum has swung back to PIT's advantage (SW coming to PHL).

No matter what, PIT will be a much different place by the end of 2004........LCC's and a dimished US presence.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by HPTunco:
I did read that PIT can charge US 20% more on the lease after Jan 1st......don't think that they won't use this as leverage since the pendulum has swung back to PIT's advantage (SW coming to PHL).</font>

The problem is for them to make the same amount of money off US, even with the 20% "penalty" US would have to operate 83.3% of the schedule in 2004 as they do now ... I seriously doubt that will happen because of the 20% penalty.

US basically guaranteed PIT somewhere around $50 million in rent for 2004 and the airport rejected it ... even with the 20% "penalty", they're not going to get that much money out of US now ... either the lease will be renegotiated at a much lower rate or US is going to drastically cut service out of PIT (more than they already have) ... either way PIT is going to get less money out of US ...

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Beckles:
Why the heck wouldn't Allegheny County extend the current lease for another year, that doesn't make any sense ... there's no way they're going to get more rent under a new lease than the current lease. On one hand I understand that they don't want to drag this out, but if it were me running the airport I'd be more than happy to let US keep paying it's current rent for another year knowing they are going to be paying a lot less once the lease is renegotiated (either because of lower rent or a lot less flights).</font>

I'd call it TIT for TAT. US canceled the leases in the last 20 minutes of bankruptcy and left the ACAA looking dumbfounded. Now ACAA says "nope, pay up or get out" I guess. They played on US's field and now ACAA has turned the tables. Good for them.

The already diminished departures and landings by US is being recovered by the other airlines. The other airlines have increased the presence by 11% just in the last few months while US dropped another 28%. Guess there's no one at US that seems to care they are loosing more and more customers.

US won't leave PIT anyway. Maybe only once they've become UNITED. Hey!?! Maybe the US planes are going to be repainted and named TED now???

WOW, that's a thought!!

Yes, I agree that Allegheny County turned the tables on US. This is what happens when you don't negotiate in good faith.

The prospect of US taking flights out of PIT is unlikely, PHL is not capable of more and the CLT terminal is bursting with people too. Service would suffer too much.

Plus, when SW begins flying out of PHL, US's fare system will be in CHAOS. PIT may be their only salvation!

Prediction: SW in PIT by the end of 2004....

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Beckles:
Why the heck wouldn't Allegheny County extend the current lease for another year, that doesn't make any sense ... there's no way they're going to get more rent under a new lease than the current lease. On one hand I understand that they don't want to drag this out, but if it were me running the airport I'd be more than happy to let US keep paying it's current rent for another year knowing they are going to be paying a lot less once the lease is renegotiated (either because of lower rent or a lot less flights).</font>


I don't think that ACAA can do it even if they wanted to. The following was explained to me by an ACAA employee who has nothing at all to do with the leases:

There are two kinds of leases at PIT, the "signatory tentant" kind and the "month to month" or "as used" variety.

The former requires something like a multiyear commitment to one or more gates, which then become exclusive use for the signatory airline.

The latter means you lease what happens to be available on an "as needed" and "available gate" basis.

US was a signatory tenant, but broke that lease. The rates charged to "non-signatory" tenants are about %20 higher than what the "signatory tenants" pay.

If ACAA gave US a break on a "non-signatory" basis, the signatory tenants would be howling at the moon because US gets to have it's cake (lower lease payments) and eat it too (still being able to walk away whenver). The non-signatory tenants would also be howling at the moon because US gets the same benefits and pays less.

This is a situation of US' own making. I'd still like to know exactly where else they plan on hubbing 100+ RJs and the 30-40 mainline aircraft currently assigned to the PIT hub. If they try to run it all thru PHL, you could sell tickets and popcorn and put it on cable. It'd be better entertainment than "punk'd" or "jack@$$."

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Don't feed the trolls.

What effect do the turboprops have as far as pitt's importance to US's hub system?

Where does US currently service using turboprops in Pitt that wouldn't have the range to make it to Phl?

As for SW, are they _really_ competition for US? I mean, US's presence in the southwest (or even the west) is minimal.

Admittedly, it would be difficult for US to re-deploy the aircraft used in its PIT operation to other venues. However, I contend that it would be MORE difficult for PIT to find another hub tenant, due to the airport's high costs and poor geographic location.

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Has YOUR airline won an award lately?

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Joe Airman:
As for SW, are they _really_ competition for US? I mean, US's presence in the southwest (or even the west) is minimal.</font>

Unfortunately, Southwest has a major east coast presence. They can go up against US to the greater Boston area, upstate NY, Hampton Roads, RDU, Chicago, Detriot, Houston, and kill US to Florida. Because of their connecting opprotunities and fares, they will depress US yields even to the places that they don't fly directly out of PHL (all of the west coast destinations).

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Don't feed the trolls.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by avek00:
Admittedly, it would be difficult for US to re-deploy the aircraft used in its PIT operation to other venues. However, I contend that it would be MORE difficult for PIT to find another hub tenant, due to the airport's high costs and poor geographic location.

</font>

HUH?!?

High costs created for and by USAirways. Poor geographic location? Look at CLT. Better bad weather capabilites than PHL, LGA and if you want to throw in ORD for fun.

PIT would be the perfect overflow hub, reroute hub, inclement weather hub, if US were to utilize a rolling hub scenerio.

This is the most underutilized hub since Siegel took over. Say what you want about the prior management and the politicos of Pgh and Allegheny County, but just a few years ago, PIT was used properly. Now it's a shell of it's former self due to improper management decisions. Plain and simple.

One other thing..........

PIT doesn't need another airline to make it a hub. I'd rather have more options from various airlines than to keep putting my eggs (or frequent flyer miles) in 1 basket again. In only 4 months I've already requalified for gold elite status on NW. Imagine having that option with more airlines. Oh wait? I already can with the NW/CO/DL alliance. So I really do have more options for travel than ever before.

Now just invite jetBlue and Southwest in.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by avek00:
...........poor geographic location.

</font>

Take a look at a map. PIT is within 500 miles of the major eastern, midwestern, southern and Canadian cities. The geographic position is actually ideal for a "hub". The airspace isn't crowded and runway configuration provides great flexibility.

Sure, we won't get another large hub, but an increase from current tenants, and a few new ones would serve us well.

I don't know where people are getting the idea that if US Airways dismantles its PIT hub that other airlines are just racing to take its place...give me a break! Very few airlines are actually expanding at any great rate, and Southwest is slower than the continental drift when it comes to adding service to a new city. No, if US pulls its hub out of PIT you're gonna be able to hear the crickets from the concourses. It will be like Indianapolis...served by 20 airlines and the vast majority of flights as hub feeders.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by ClueByFour:

I don't think that ACAA can do it even if they wanted to. The following was explained to me by an ACAA employee who has nothing at all to do with the leases:

There are two kinds of leases at PIT, the "signatory tentant" kind and the "month to month" or "as used" variety.

The former requires something like a multiyear commitment to one or more gates, which then become exclusive use for the signatory airline.

The latter means you lease what happens to be available on an "as needed" and "available gate" basis.

US was a signatory tenant, but broke that lease. The rates charged to "non-signatory" tenants are about %20 higher than what the "signatory tenants" pay.

If ACAA gave US a break on a "non-signatory" basis, the signatory tenants would be howling at the moon because US gets to have it's cake (lower lease payments) and eat it too (still being able to walk away whenver). The non-signatory tenants would also be howling at the moon because US gets the same benefits and pays less.

This is a situation of US' own making. I'd still like to know exactly where else they plan on hubbing 100+ RJs and the 30-40 mainline aircraft currently assigned to the PIT hub. If they try to run it all thru PHL, you could sell tickets and popcorn and put it on cable. It'd be better entertainment than "punk'd" or "jack@$$."

</font>

Based on my understanding, the key points you state are basically right about the signatory and non-signatory, but the one thing is US has not yet broken its lease. The court said that US could break its lease as of a certain date (sometime earlier this year). ACAA has already allowed one extension of that date (to January 4, 2004 or something like that) and US asked for another, so based on what's happened so far, it appears that in fact the ACAA could extend the lease if they wanted to since they have already done that once.

I think that we'll see a drastic reduction in schedule from US out of PIT after the beginning of the year unless this is resolved and the assets will be redeployed ... US may try implementing a rolling-hub in CLT to increase gate utilization there and more of the early and late flights that were cut will be added back.

BTW, I was reading this article (http://biz.yahoo.com/prnews/031125/cgtu004_1.html) posted in another thread (on the NW board) and was surprised to see that PIT is not charging the maximum allowable PFC ... what's up with that? I know in terms of ticket prices its six of one/half-dozen of another, but seems like that's something they should have done a long time ago (when the maximum allowable was increased to $4.50 from $3.00 ... a few years ago I believe).

I know someone will correct me if I am wrong..but.

I think the airport has to 'justify' increases in the PFCs. While there are limits, they can't just come to work one day and say 'screw it, lets max it out'.

The reason my memory is saying this is because increasing the PFCs was something mentioned early on to 'pay for the airport debt'. But the PFCs are apparently meant to pay for ongoing improvements, etc.

If they dont have an operational purpose for them (and at a certain cost), they cant do it.

I dont like replying to myself, but a fairly significant update.

In short, the feds 'changed the rules' on what PFCs can be used for in a recent bill. While previously they had to be used for capital improvements, they can now be used to pay down airport debt (this is a huge change).

While it remains to be seen how the "rubber will meet the road" on how high the PFCs could be jacked up, etc, this is certainly a possible partial solution the PIT hub issue. There is a lot of uncertainty about how the FAA might actually manage this new provision - presumably they wouldnt just allow PIT to increase the PFC to a price equivalent to pay off the interest completely each year.

The PFCs there remain below some of other airports, so there is some wiggle room up to a higher fee.

One last relevant point - apparently the Allegheny County Airport Authority head (Kent George) was a strong proponent of this change in the bill. Kudos to him.

I am torn between being happy for a potential fix and sad that I might not see US have too squirm/concede a little. This seems too easy.

Link to Pittsburgh Post-Gazette article:
http://www.post-gazette.com/localnews/20031218airleaselocal3p3.asp

http://www.post-gazette.com/pg/03353/252973.stm

<font face="Verdana, Arial, Helvetica, sans-serif" size="2"> US Airways Chairman David Bronner yesterday reiterated the importance of Pittsburgh to the ailing airline, saying it was "an integral part" of the US Airways' system and "too big a city" not to be hub.

There was also no indication, Bronner said in wide-ranging telephone interview from his Montgomery, Ala., office, that Chief Executive Officer David Siegel wanted to "pack up and leave" Pittsburgh International Airport, where it's the dominant carrier.</font>

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Don't feed the trolls.

OK, PFCs can now be increased and that revenue can bet used to pay debt. That isn't really much help because the airports debt costs will still be included in the total cost of a ticket through PIT, it will just be broken out. Since PFCs are usually fixed they will have a higher marginal impact on low priced flights.

Just a few thoughts.

Jay

The spring schedules are showing new/returning Europe flights on 330's in the Spring, so maybe they're not putting all their eggs in the PHL basket anymore...

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by StSebastian:
The spring schedules are showing new/returning Europe flights on 330's in the Spring, so maybe they're not putting all their eggs in the PHL basket anymore...</font>

What are the new flights and do they have the aircraft to support this?

Jay

FWIW, the PHL international terminal, while a long walk from terminals B-F, is wonderful. I know a lot of people who live in the Philly area and they are quite impressed with the terminal. There is a reason LH's CEO made reference to making PHL a major Star Alliance gateway.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by USFlyerUS:
FWIW, the PHL international terminal, while a long walk from terminals B-F, is wonderful. I know a lot of people who live in the Philly area and they are quite impressed with the terminal. There is a reason LH's CEO made reference to making PHL a major Star Alliance gateway.</font>

LH might like it a lot, they will fly in there maybe twice a day and have hours between flights to allow for delays. If they had to fly a lot of flights with quick turnarounds, they would likely go insane the first time it drizzled. In my experience PHL is a disaster for US, it is very often really unreliable during any weather issues. I think US has made a huge corporate mistake in putting so much emphasis there. It is one of the reasons they had so many canceled flights in the fall in my opinion. It is a strategy that subjected them to problems and they happened.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by StSebastian:
The spring schedules are showing new/returning Europe flights on 330's in the Spring, so maybe they're not putting all their eggs in the PHL basket anymore...</font>

I'd like to second the request for more info - where did you see a spring schedule?

the online timetable seems to be only good for a few months (end of january). and the PIT-LGW flight isnt even on there.

Onorato, US Airways to meet Monday to discuss airport

Thursday, January 01, 2004
By Mark Belko, Pittsburgh Post-Gazette

http://www.post-gazette.com/pg/04001/257099.stm

US Airways and Allegheny County Chief Executive-elect Dan Onorato will meet in their first formal negotiating session on Monday to try to hash out an agreement governing the airline's operations at Pittsburgh International Airport through Labor Day.

As of Monday, US Airways no longer will be bound by airport leases that run until 2018 because it canceled them, effective Jan. 5, shortly before emerging from bankruptcy in March.

While the cancellation gives the airline the flexibility to shut down its Pittsburgh hub, where it is the dominant carrier, US Airways has committed to U.S. Sen. Rick Santorum, R-Pa., to maintain current service levels at least through Labor Day.

Onorato, who takes office tomorrow , hopes to come out of Monday's meeting with an interim agreement covering the next eight months while the state, county and airline continue to negotiate the larger issue of reducing the airport's $673 million in debt.

"We're just trying to set up an arrangement to go forward the next eight months," he said. "My goal is to have it done by the Jan. 5 and to announce what it is."

....

I sat next to a US Air employee last week who told me that only 6% of the passengers who fly out of PIT originate there as opposed to something like 45% at PHL.

At those rates, they could put the PIT hub in a cornfield somewhere and save lots of $$

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by bofie:
At those rates, they could put the PIT hub in a cornfield somewhere and save lots of $$</font>

Ummmmm.....they did. http://www.flyertalk.com/forum/rolleyes.gif

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by bofie:
I sat next to a US Air employee last week who told me that only 6% of the passengers who fly out of PIT originate there as opposed to something like 45% at PHL.</font>

They were off by a factor of magnitude. IIRC, it's somehere in the %30-35 range.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">At those rates, they could put the PIT hub in a cornfield somewhere and save lots of $$</font>

As has been mentioned, if you approach PIT from the Hopewell side of the airport, that (cornfields) is basically what you get. PIT is like the 3rd largest airport by land-mass in the US (behind DEN and DFW, IIRC). You can't put something like that anywhere near a major city.


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Don't feed the trolls.