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The Honolulu Advertiser
Posted on: Sunday, April 13, 2008

Aloha clouds Honolulu airport plan

By Rick Daysog
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser
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First announced: March 2006

Total cost: $2.3 billion

Cost of upgrades: $1.9 billion for Honolulu International Airport

Highlights: New gates, moving sidewalks, people-mover rail system

Other airports getting upgrades: Kahului, Maui; Kona and Hilo, Hawai'i; and Lihu'e, Kaua'i

Funding: federal grants and airport fees

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The state's 12-year, $2.3 billion airport modernization plan which includes an air-conditioned people-mover for Honolulu may have to be modified in the wake of the failures of Aloha Airlines and ATA Airlines.

The two carriers flew more than 14 percent of the passenger seats between Hawai'i and the West Coast. They would have paid about $15 million this year in landing fees and rents, according to figures provided by Aloha and a local airline industry trade group.

The loss of revenue represents a significant chunk of the $100 million a year that the state collects from the dozens of carriers that fly in and out of Hawai'i.

Some of the loss will be offset by other carriers adding capacity, but the airline industry may have a difficult time replacing all of the lost passenger seats this year, given the record-high fuel prices.

Gov. Linda Lingle's administration is counting on the fees and rents paid by the airlines to help finance the airport renovation plan. Any major shortfalls could force the state to adjust the timing or scope of individual projects.

"I would be surprised if these developments don't cause the state's plan to be delayed or altered in some ways," said Kurt Krummenacker, lead analyst for airport bonds at Moody's Investor Services in New York. "It is such a traumatic loss of air carrier capacity."

The airport modernization plan is Hawai'i's second largest public construction project behind Honolulu's $3.7 billion fixed-rail transit system.

Aloha, the state's No. 2 carrier, shut down its passenger service on March 31 and fired 1,900 workers in the largest, single-day mass firing the state has ever seen. The closing which Aloha blamed on soaring fuel prices and a grueling interisland fare war came 11 days after the storied airline filed for bankruptcy protection for the second time in about three years.

Indianapolis-based ATA shut its doors three days later, stranding thousands of passengers traveling between Hawai'i and the West Coast. With its 770,000 passenger seats a year, ATA had been the state's third largest trans-Pacific carrier behind United Airlines and Hawaiian Airlines.


State Budget Director Georgina Kawamura said she doesn't believe that the closings of Aloha and ATA will put a strain on the airport system's finances.

Kawamura said that collections from lease rents aren't likely to decrease due to the high demand for the space at the airports. Hawaiian Airlines has already approached airport officials about taking over Aloha's ticket counters and boarding gates at Honolulu International Airport and boarding gates on the Neighbor Islands.

Kawamura said the state will be able to recover most of the landing fees as other carriers expand their service to meet demand.

She said the state is going ahead with construction of essential airport projects that benefit the public, such as the new parking structure and electricity upgrades.

But if revenues continue to decline, Kawamura said the state has the flexibility to make adjustments to less essential projects that were requested by the airlines such as new passenger terminals and the automated people mover.

According to Kawamura, major bond rating agencies such as Moody's and Standard & Poor's have given high ratings to Hawai'i airport bonds, which are being used to finance the expansion. In December, Moody's upgraded the state's $673.7 million airport system bonds, citing the robust demand for air travel and the state's healthy budget surplus.

"We always stand ready to make adjustments but we don't see that happening immediately," Kawamura said.

Jesse Ortega, bond analyst with Fitch Ratings in San Francisco, believes other sources of income such as car rental agencies and concessionaires could help mitigate the lost ATA and Aloha revenue.


According to state figures, Hawai'i's airport system receives $120.7 million a year from its concessionaires such as DFS Hawaii and HMS Host Corp.

In a telephone interview on Thursday, Krummenacker, the Moody's analyst, said his agency isn't downgrading or changing its outlook on Hawai'i's airport bonds, which are rated high-quality. But he said Moody's is monitoring the impacts of the airline closures and that he wants to see if other carriers increase capacity over the next several months.

"There certainly are some concerns since it's likely to reduce the number seats in the market," Krummenacker said.

To be sure, the remaining airlines may end up footing a bigger portion of the airport's expansion costs, according to one airline industry group.

"There's going to be an impact on everyone who is remaining," said Rod Aoki, director of the Airline Committee of Hawaii, which represents 24 of the carriers that serve Hawai'i.

"But so far, nobody knows how much the impact is going to be."

Aloha Airlines said it paid about a total of $9.5 million for its use of the state airports in 2007, although the state puts that number at $8.4 million.

Aloha said its payments would have increased to $12.5 million this year due in large part to a 17.6 percent landing fee increase proposed by the Lingle administration.

According to Aoki, ATA paid about $1.2 million in landing fees and about $1.3 million in airport rents in 2007.

Under the new landing fee schedule, ATA would have paid about $1.4 million in landing fees in 2008 if it had operated the same number of flights that it did in 2007.

ATA said it could not provide figures on the impact of the company's shutdown on Hawai'i's airport.

Nearly all of the company's 2,200 workers were fired when ATA closed.

"There really aren't people around anymore who can provide these types of details," an ATA official said in an email.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.