July 2011 Contact: [email protected]; 571.379.0534

United/Bush Airport Factsheet Houstonians have a right to know that a United lease agreement and $1 billion planned expansion at Bush Intercontinental are good deals for them, too. The Terminal B expansion is an exciting and necessary project that will have implications for the City decades into the future and therefore needs to be presented to the community in a complete and transparent manner that allows for community input on our airport.

Houston Airport System and United are forging ahead on an out-of-date deal. The Expansion deal was passed by Council three years ago, in another fiscal reality. The 2008 agreement was negotiated between HAS and Continental Airlines, a Houston based airline that up until 2008 received years of taxbreaks in return for commitments to employ Houstonians.

In 2008: The city of Houston ran a surplus. United was coming out of bankruptcy. Continental was a Houston-based company, committed to Houston.

In 2011: The city of Houston had a $75 million deficit. Middle class families see stagnant wages, high unemployment, cuts in public services. United and Continental merged, cut jobs in Houston, became profitable and the world’s biggest airline.

There are big questions about lease and expansion agreements between United and HAS at IAH. Are Houston taxpayers committing more to the expansion project than United? As best we can tell, United is only fully committing to $97 million of the $1 billion project. The recent announcement indicated that the airport project will now be executed in three phases, but that United has the right to not follow through with the second and third phase of the agreement. The first phase only commits United to $97 million of the expansion. Does that mean HAS and the City could be responsible for the remaining financing and execution of the project? How is Houston going to be protected from the risk that the airline will again renege? Does the Special Facility Revenue financing put taxpayers on the hook for United’s debt? The City has elected to issue Special Facility Revenue bonds to fund the project, a type of “conduit” financing that allows United Continental Holdings to get tax-free financing through the municipal bond market, while providing less disclosure than it would have to provide if it borrowed through the corporate bond market.i Although accounting for a small percentage of all municipal bonds, conduit bonds are responsible for a disproportionate number of defaults in the municipal bond market.ii Airport special facility bonds, moreover, have been a particularly problematic type of conduit financing. The US Department of Transportation noted in a report that special facility bonds, especially those backed by a single carrier, “have come under great scrutiny as a result of recent airline bankruptcies.”iii As a result of the problems airports and borrowers faced in recent airline bankruptcies, one bankruptcy attorney declared Special Facility Bonds “deader than a door nail.”iv Why has HAS chosen to continue using this type of financing?

Will United continue to pay lower terminal rental rates than airlines at Hobby? As an enterprise fund, HAS self-funds its operations from revenues from airlines, concessionaires, and other sources. Prior lease agreements have had highly favorable lease rates for Continental (now United). At Intercontinental, dominated by United, the average square foot terminal rent has been between $23.74/sq ft$71.84/sq ft, whereas at Southwest dominated HOU it is between $92.74 -$106.58.v The new lease terms have yet to be disclosed. Will they continue this disparity? Why are the lease rates so skewed? Would the agreement with United provide enough revenue to maintain jobs and avoid hurting services and security at the airport? The proposed new deal includes a provision where United will take over the concessions and maintenance at Terminal B and will keep 90% of the revenue generated by the concessions. HAS has repeatedly stated its goal of increasing non-airline revenue and increased operating revenue in 2010 was “largely due to higher retail concessions and car rental revenues.” vi HAS recently laid-off over 100 city workers, some with security functions. Will the new lease terms provide HAS with enough future revenue to effectively operate IAH with full staffing? What will the revenue impact be of the change in concessions? Is HAS giving away oversight, and what provisions will exist to protect workers and the flying public? In allowing United to assume the concessions and maintenance agreements, we are concerned about the City’s future ability to effectively monitor these important pieces of airport operations. Moving these services out of the City’s purview would seem to exempt these services from oversight. Has the City implemented enforceable standards and the ability to aggressively audit the functions it plans to cede to the airline? Will City standards for women and minority-owned businesses apply to United’s contract? Descriptions of the project also indicated that United would be responsible for hiring and overseeing some construction contractors for the expansion. Would moving those contracts from the City’s responsibility to United’s also eliminate procurement standards, requirements for small, women and minority owned contractors and prevailing wage standards? Will there be local hire standards as part of the agreement? Will the City protect taxpayers and workers by creating a transparent process before any lease is signed and the expansion project takes off? Council should not vote on the airport projects until there has been appropriate scrutiny of all agreements and an open process occurs that answers the concerns of airport workers, passengers and taxpayers.

i

“Problems in municipal market extend beyond California firm.” Los Angeles Times, June 14, 2011. http://latimesblogs.latimes.com/money_co/2011/06/problems-in-municipal-market-extend-beyond-california-firm-.html ii Ibid. iii “Impact of Air Carriers Emerging From Bankruptcy on Hub Airports, Airport Systems, and U.S. Capital Markets.” US Department of Transportation, December 2003. iv “Growing the Bottom Lines: Opportunities, challenges for the airport finance side of the ledger.” January 11, 2011. http://www.airportbusiness.com/online/printer.jsp?id=5981 v City of Houston, Texas, Airport System, Subordinate Lien Revenue Refunding Bonds, Series 2010, p.33 vi “Fitch Rates Houston Airport, TX Rfdg Bonds 'A+' & Affirms Outstanding Sub Lien Revs; Outlook Stable,” Business Wire, June 22, 2011, www.businesswire.com/news/home/20110622006332/en/Fitch-Rates-Houston-Airport-TX-Rfdg-Bonds