United’s $1 Billion Expansion Deal at Intercontinental: Bad for Houston The City of Houston and United struck a $1 billion deal to expand and renovate United’s B Terminal at Intercontinental Airport in May 2011. Now the deal, which could last up to 40 years1, is being pushed through Council without including important provisions that would make sure that the expansion creates good local jobs both during and after the expansion and provide meaningful oversight over United and its contractors. The terms that have been disclosed also fail to assure Houston that the deal is fair and if the airport is getting all the revenue it should from United to make sure HAS can maintain a safe and secure airport. The terms of this deal will bind the citizens of Houston for a generation, yet United has only fully committed to complete one phase of the expansion.2 That’s why Houstonians need to make sure our interests are protected and the public’s investment in the airport leads to sustainable growth, good jobs, and high quality services. United’s Commitment Problem The plan to expand and renovate Terminal B at Intercontinental will take place over multiple phases, but United has only committed to completing the first phase of the project, which amounts to only $97 million of the $1 billion project.3 After that, all further projects are at United’s “sole discretion.” 4 This agreement protects United’s use of the Terminal for decades yet United will not have any real obligation to continue investing in our airport after completing the portion projected to take less than 3 years. United has already slashed 1,500 jobs from Houston and moved them to Chicago.5 This agreement does not guarantee that United will hold up its end of the bargain. What happened to "Hire Houston First"? Just last week Mayor Parker was touting the importance of using public funds to invest in our communities by contracting with local businesses for public projects,6 but this $1 billion deal does not include any commitments to contract with Houston-based businesses. Without a commitment to hire locally, Houstonians could be left out. The agreement overall includes no commitments to create concrete numbers of jobs – either in the construction phase or in ongoing operations. With United’s ability to back out of future phases, Houston has little ability to count on United for job creation.

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Second Amended and Restated Special Facilities Lease Agreement (Continental Airlines, Inc, Terminal Improvement Projects), Section 3.02(iii) pg. 19 2 Second Amended and Restated Special Facilities Lease Agreement (Continental Airlines, Inc, Terminal Improvement Projects), Article 3 Lease and term; Grant and Ground leases; Exclusive and Preferential Use Space, pg. 18 3 Terminal B Redevelopment PowerPoint Presentation, June 14, 2011, Slide 10 4 Second Amended and Restated Special Facilities Lease Agreement (Continental Airlines, Inc, Terminal Improvement Projects), pg 8 5 Jenalia Moreno, “Merger with Continental costing 1,500 United jobs in Houston,” Houston Chronicle, June 11, 2011,http://mobile.chron.com/chron/db_271452/contentdetail.htm?contentguid=GI4SnN1S&src=cat&full=true#di splay 6 Jessica Priest, “Parker readies ordinance to boost city bids,” Houston Chronicle, July 29, 2011

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There is a difference between a job and a good job The $1 billion plan will place responsibility to hire workers and contractors for many ongoing Terminal operations in United’s hands. But the agreement doesn’t set adequate standards to ensure that the jobs will be ‘good jobs’ not just jobs. For maintenance and janitorial workers in the terminal whose work will be turned over to United, the agreement fails to protect the standards of existing good city jobs.7 Will the Airport System generate enough revenue to sustain service levels at Intercontinental? Earlier this year the Houston Airport System laid off over 100 workers - some with security functions -8 which raises concerns about HAS having enough revenue to maintain service and security levels. It is crucial that the agreement with United provides the Airport with enough revenue going forward, and that citizens of Houston know that the airport is getting a fair deal. The lease agreement documents that were given to City Council had no specific revenue projections and did not disclose the amounts of most rental rates and charges to be paid by United.9 Rental rates were only specified in the “Transition Lease”, which applies to all areas in the terminal before they are designated for renovation. In that lease United would pay a terminal rental fee of $6.50/sq foot10 - the exact same rate they paid in 1998.11 With ground rental rates at Bush far below Hobby,12 the full picture of how much United is expected to pay HAS is critical to taxpayers. A concession deal that caps revenue for decades HAS earned nearly $28 million in revenue for retail concessions last year - including $6 million from just two food and beverage concessionaires at IAH.13 However in the new lease, in areas where the renovation has been completed, United will keep all but 10% of what it makes from concessionaires in Terminal B and the City’s share of the 10% is capped at $1 million a year.14 The lease agreement does not even lift the $1 million cap in revenue to the City over the potentially 40 years of the agreement. It will not rise to account for inflation, for more lucrative deals with concessionaires, or for the increases in enplaned passengers and revenue that will result from the expansion. The 13 Inside Concession agreements to be assumed by United include food and beverage, news and gifts, duty free, currency, ATMs, in-terminal advertising, WiFi, and others.15 Each concession currently provides revenue streams to the City. No information has been made available to determine what share of the $28 million in total 7

Second Amended and Restated Special Facilities Lease Agreement (Continental Airlines, Inc, Terminal Improvement Projects), Section 5.01 pg. 31 8 Isaiah Carey, “Houston Airport System Director Defends Layoffs,” Fox 26, May 24, 2011 www.myfoxhouston.com/dpp/news/local/110524-houston-airport-system-director-defends-layoffs 9 Second Amended and Restated Special Facilities Lease Agreement (Continental Airlines, Inc, Terminal Improvement Projects), Article 6, pg 40 10 Second Amended and Restated Special Facilities Lease Agreement (Continental Airlines, Inc, Terminal Improvement Projects), Exhibit E, pg. 6 11 Airport Use and Lease Agreement Terminal B 1998, pg. 26 12 City of Houston, Texas, Airport System, Subordinate Lien Revenue Refunding Bonds, Series 2010, p.33 13 Official Statement, June 28, 2011 City of Houston Airport System Bond 14 Section 7.03. Until then, United will be paid a fee of $300,000 a year out of the revenues that previously went to HAS. 15 Exhibit “7.03”

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retail concessions HAS currently earns from Terminal B concessionaires that it will cede to United, but it seems likely to exceed the $1 million cap. And it is hard imagine why the city would cap revenue going forward when it has placed significant recent emphasis on increasing concession revenues. Why is the City forfeiting meaningful oversight of contractors and tenants at Intercontinental? The lease does not appear to give HAS and the City oversight to ensure quality, staffing levels, or require continued improvements to concessions facilities over the generation-long agreement. There is a history of controversy in Houston’s concessionaire selection processes. It is disturbing that, rather than improve oversight and transparency, that this agreement will take concessions entirely outside public scrutiny.16 Further, the City Controller has just released an audit of a food and beverage concessionaire at IAH,17 and found that more than $300,000 was owed to the City based on misreporting gross sales. This is a strong indication that more oversight is warranted to ensure the City gets what it is owed and makes it even more important that City has the power and the tools to directly hold businesses at the airport responsible for their performance. As part of the agreement United will hire construction contractors, concessionaires and maintenance personnel, which means City ordinances and standards that apply to contracting will no longer apply. United will be in charge of making sure their contractors comply with airport rules, but United has had problems overseeing their current contractors. A wheelchair and cart service provider Primeflight is currently being sued in multiple lawsuits for causing injury to passengers, including running over a passenger. The City needs to make sure the agreement sets standards at the airport that assure all contractors, tenants and airlines operate in a manner that makes the airport safe and secure for everyone.

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Second Amended and Restated Special Facilities Lease Agreement (Continental Airlines, Inc, Terminal Improvement Projects), Section 7.03, pg 50 17 HOUSTON AIRPORT SYSTEMS Houston Airport Systems Concessions Division, Compliance Audit of Concessionaire Contract No 30046 - JDDA SSP (Joint Venture), July 15, 2011

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